Bookkeeping · Daily Workflows · Brief · Working level
Billable expenses and client reimbursements
How to book costs you incur for a client and bill back — markup or pass-through, gross versus net presentation, and the entries that keep reimbursements from looking like profit or vanishing as losses.
When you buy something on a client's behalf — travel, materials, a subcontractor, a filing fee — that cost is billable, and it needs two disciplines at once: the expense must be tagged to the client the moment it is recorded, and the rebilling must flow through the invoice so the recovery is visible against the cost. Handled loosely, billable expenses leak in two directions — costs never rebilled (pure lost money) or reimbursements booked as fresh revenue with the cost forgotten (phantom profit).
The entries, gross presentation
You pay a $400 materials cost for the Harbor & Finch job, to be rebilled at cost:
| Account | Debit | Credit |
|---|---|---|
| Reimbursable expenses — Harbor & Finch job | 400 | |
| Cash — operating checking | 400 |
Tag it billable to the client now. On the business card instead, credit the card liability — see the credit-card brief.
Next invoice, the cost rides along with your fees:
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable — Harbor & Finch | 2,400 | |
| Service revenue | 2,000 | |
| Reimbursed expense income | 400 |
Reimbursed-expense income of 400 against the 400 expense nets to zero on the P&L — the cost passed through, visibly.
With a 15% markup, the credit is 460 and the 60 difference is real margin. Either way the P&L shows both legs, which is the point: at year-end you can see that $18,000 of reimbursable costs produced $18,700 of recoveries, rather than wondering where either number went.
Gross versus net
Two defensible presentations — choose one and stay with it.
| Gross | Net | |
|---|---|---|
| The cost | Expense when incurred | Expense when incurred |
| The recovery | Reimbursed-expense income | Credited against the expense account |
| P&L effect | Revenue and expenses both larger; margin unchanged | Smaller top line; expense shows only unrecovered cost |
| Best when | You want recovery visibility; software default | Pure at-cost pass-throughs you want out of the revenue figure |
One nuance worth knowing: gross presentation inflates the top line, and some thresholds — loan covenants, insurance premiums based on revenue, and certain gross-receipts-based tax tests — key off gross receipts. Ask your preparer which figure your return should reflect; the accounting-method framework lives in Publication 538. Amounts you merely advance as a true agent (a client's own government filing fee, paid from their funds) can instead sit in a pass-through asset account and never touch the P&L at all.
The weekly sweep
- Tag every billable cost at categorization time — client, job, markup treatment.
- During the weekly invoicing session, pull the unbilled-billables report and sweep everything onto invoices.
- Show rebilled costs as their own invoice lines, receipts available on request — itemization is what makes clients pay these without argument.
- Monthly, check that the reimbursable expense and reimbursed income accounts roughly track; a widening gap is unbilled cost leaking.
Firms that track costs by project formally will recognize this as the front edge of job costing — billable tagging is job costing's simplest, highest-yield special case.
Frequently asked questions
- Are client reimbursements income to my business?
- Under the common gross presentation, yes: the rebilled amount is recorded as reimbursed-expense income and the underlying cost as an expense, netting to zero (or to the markup, if any). The alternative net presentation credits the reimbursement directly against the cost. Either is defensible if applied consistently; gross is what most small-business software does by default.
- Should I mark up expenses I pass through to clients?
- It is a business decision, not a bookkeeping one — but state it in the engagement letter either way. Pure pass-through at cost is common in professional services; a 10–20% handling markup is common in construction and creative work, compensating you for carrying the cost and the procurement effort. What you cannot do is mark up silently.
- How do I keep track of which expenses are billable to which client?
- Tag the expense as billable to the specific client or job at the moment you categorize it, using your software's billable flag or a job tag. The weekly invoicing session then sweeps unbilled billables onto invoices. Costs tagged late or never are the ones that leak — most firms that don't tag systematically fail to rebill some real share of what they could.