posted April 22, 2016

Revenue or Reimbursement – Determining the Proper Accounting Treatment

by Christopher W. Heinfeld, CPA, Audit Manager

Most often, transactions that increase the financial resources of an organization are relatively easy to record and determine the proper accounting treatment. That being said, there are certain other transactions that may appear to increase the financial resources of an organization (as cash is received), but rather, reimburse the organization for a previously recorded expense that was not an expense belonging to the organization. But, before we dive into the technical aspects of determining whether a receipt is a revenue or reimbursement, let us first begin with a basic definition of each, related specifically to this discussion, along with how to record each transaction:

Revenue:compensation received for goods or services provided by the organization, or grants and contributions received by the organization.

Reimbursement:the act of compensating or refunding an organization for a previous expense, incurred by the organization, which was not an expense belonging to the organization (usually through cash or check).

Revenues are typically recorded as an increase in cash or a receivable (typically, a debit to cash or a receivable and a credit to revenue). On the other hand, a reimbursement is typically recorded as a reduction of the previously recorded expense; thus, eliminating part or all of the initial transaction (typically, a debit to cash and a credit to expense).

The act of recording each type of transaction can be fairly simple, as indicated above; however, the deciphering of whether a receipt is a revenue or reimbursement, and the proper accounting treatment, may not be as easy. That being said, most receipts of an organization are revenues, and reimbursements only occur to eliminate expenses that do not belong to the organization; however, to help you in determining whether a receipt is a revenue or reimbursement, consider the following examples:

Usually Recorded as Revenues:

  • Grants, gifts, donations, sponsorships, and contributions
  • Insurance proceeds and settlements
  • Payment received for services or goods previously provided

Usually Recorded as Reimbursements:

  • Refunds and rebates
  • Payments received for personal usage (not true expenses belonging to the organization) recorded originally by the organization as expenses

As there are always exceptions to the norm (ex. “out-of-pocket” expenses – ASC 605-45-45-23), if you have any questions or concerns about the accounting treatment for a specific transaction, use guidance available related to your specific organization and/or contact your accountant or auditor.

The content of these pages is for general information purposes only and does not constitute advice. Heinfeld, Meech & Co., P.C. tries to provide content that is true and accurate as of the date of writing; however, we give no assurance or warranty regarding the accuracy, timeliness, or applicability of any of the contents.