I am not an accountant, but I do have my business degree and I was recently elected as treasurer to an organization. Background: This is for an HOA and there is a separate entity that files their own taxes that reimburses the HOA for insurance, payroll and office expenses. The account has the office staff entering expenses into quickbooks in one line item, but the reimbursement from the other organization in a separate line item. Why would they do this. To me it looks extremely messy. In another instance we carried the note on the tennis courts but when they were paid off again the payments were put into a separate account so it will forever look like we have this current asset with a balance and another current asset with a negative balance. This makes no sense. Any help is appreciated.
Why would reimbursements not be put against expense accounts?
Answers
First, let's see what an expense means:
An expense is a cost that a company incurs in manufacturing goods or providing a service. It is a cost the company uses up to earn revenues. Whereas, the loss is the excess of expenses incurred over revenue earned by a business. For example, if you're into manufacturing and selling smartphones, the costs incurred in order to manufacture and sell the smartphones can be considered as expenses - direct raw materials, direct labor, overheads, selling, general and administrative expenses form part of expenses as you use these to manufacture and sell your smartphones to drive revenues.
Reimbursement is the act of compensating someone or paying back their money. It is not an expense incurred in manufacturing goods or rendering a service. Hence, it cannot be considered as an expense account.