To record billable expenses, code each cost to its normal expense account and tag it with the customer who will repay it. When the client invoices that customer, the charge-back is recorded as income, or as a reimbursement that offsets the cost. Matching each tagged cost to an invoice line each month proves nothing paid was left unbilled.
What makes a bank statement line a billable expense
A billable expense is a cost the client pays on behalf of a specific customer and has agreed to charge back, such as job materials or project travel. The bank statement line looks like any other purchase. What makes it billable is the agreement with the customer, so the bookkeeper has to learn which lines qualify.
The statement will never say "billable". A line such as "HOME DEPOT 1,284.60" is the same whether the paint went on the client's own office or on a customer's kitchen. Three sources help identify billable costs:
- The engagement or job terms. A contractor's quote may say materials are billed at cost plus 10 percent. A consultant's contract may say travel is reimbursed at cost.
- The client's job list. If the client tracks open jobs, purchases made from a job site address or with a job number in the memo are likely billable.
- The receipts. Many clients write a customer name on the receipt or in their receipt app.
Ask each new client which kinds of costs they charge back, and to whom. A landscaping firm may bill plants and mulch but never fuel. A marketing agency may bill ad spend but not software. Record the answer in the client's setup notes, because it decides which statement lines need a customer tag.
Two ways to record billable expenses: gross or pass-through
Billable expenses can be recorded gross, with the cost as an expense and the rebill as income, or as a pass-through, where the rebill credits the same expense and nets it to zero. Gross reporting shows the full scale of the work. Pass-through keeps revenue limited to the client's own fees. The client and their accountant should choose one.
Take an example: a consultant pays 600.00 for a customer's conference ticket and rebills it at cost.
| Treatment | When paid | When rebilled | Effect on profit and loss |
|---|---|---|---|
| Gross | Debit travel expense 600.00 | Credit reimbursed expense income 600.00 | Revenue and expenses both up 600.00 |
| Pass-through | Debit travel expense 600.00 | Credit travel expense 600.00 | Revenue unchanged, travel nets to zero |
Both give the same profit. The difference shows in the reports. A contractor whose materials are a large part of every job usually prefers gross, so revenue reflects the size of the jobs and margins can be read against total cost. A consultant who rebills the occasional ticket may prefer pass-through, so the revenue figure means fees earned.
Timing matters too. On cash-basis books the cost lands when it is paid and the income when the customer pays the invoice, which can be a month or two apart. On accrual books the income is recorded when invoiced. If the gap is large at year end, it moves profit between years; cash versus accrual for small business taxes explains why that matters to the tax preparer.
Tagging billable expenses to a customer at coding time
Tagging means assigning a customer or job to the billable expense at the moment it is coded from the statement, not weeks later when the invoice is written. The tag is what links the bank line to the invoice line. Without it, the client has to remember which purchases belonged to which customer.
Most accounting systems that support billable expenses work this way. Intuit's guide to entering billable expenses in QuickBooks Online explains that the feature is available in the Plus and Advanced plans. It is turned on in the expense settings, an expense is marked billable and assigned to a customer, and the next invoice for that customer offers the expense to add. Other systems use different screens, but the tag is the common idea.
A worked example
Below, three example purchases from one month's statements are followed through tagging. The client is an example interior design firm.
| Statement line | Amount | Expense account | Customer tag | Billable? |
|---|---|---|---|---|
| WAYFAIR, 03-04 | 2,140.00 | Job materials | Lee residence | Yes, cost plus 15% |
| UNITED AIRLINES, 03-09 | 418.30 | Travel | Ortiz office | Yes, at cost |
| ADOBE, 03-12 | 59.99 | Software | None | No |
The software plan is the firm's own cost, so it gets no tag. The other two carry the customer's name into the books and appear on that customer's next invoice.
When tags are applied during statement coding, they also feed rules. A client who always buys a certain customer's furniture through one supplier account can have a rule that suggests the tag. In AutoBankConvert, each client's rules and past coding assign every transaction to an account, and lines the rules are unsure about wait in the review queue with a suggested category, which is a natural point to add the customer tag before export.
How do you mark up a billable expense?
A markup is the extra amount the client adds on top of a billable cost, such as 15 percent on materials. Record the cost at what the client paid, and record the markup as income, either in the same reimbursed-expense income account or in a separate markup income account. Never increase the expense to include the markup.
In the example, the Wayfair purchase of 2,140.00 is billed to the Lee residence at cost plus 15 percent, so the invoice line comes to 2,461.00. The books show:
- Expense: job materials 2,140.00, from the statement.
- Income: 2,461.00 on the invoice, which is 2,140.00 of reimbursed cost and 321.00 of markup.
A separate markup account answers a question clients often ask: how much did we earn on materials this year? It also helps when a customer disputes an invoice, because the cost and the markup are already separate.
Check the contract before applying markup to every billable line. A customer contract may allow markup on materials but require travel at cost, and a mistake there is the kind of thing a customer notices.
Matching billable expenses to the invoices that recover them
Matching means comparing every tagged billable expense to an invoice line that charges it back, once a month. The goal is a list of costs with no invoice yet. That list is the client's unbilled work, and it usually holds real money. A short monthly report does the job in a few minutes.
Run the match at the end of each month's coding:
- List every expense tagged as billable for the month, with customer, date and amount.
- List every invoice line in the same period that charges back a cost.
- Pair each cost with its invoice line by customer and amount, allowing for markup.
- Mark costs with no invoice line as unbilled, with the number of days since purchase.
- Send the unbilled list to the client with the oldest items first.
For the example month, the Wayfair cost appears on the Lee residence invoice, and the United fare is still waiting because the Ortiz project bills quarterly. The unbilled report shows one line: 418.30, Ortiz office, 22 days old. That is expected, and the note says so.
If the bank charges a fee on a payment made for a customer, such as a foreign transaction fee on a supplier abroad, decide whether that fee is billable too. Usually it is the client's cost; how to record bank fees covers where it goes when it is not rebilled.
What happens when a billable expense is never invoiced?
A billable expense that is never invoiced becomes an ordinary cost that the client absorbs, which lowers profit by the full amount. Catch it with the monthly unbilled report, then ask the client whether to bill late, write it off as a job cost, or recode it because it was never billable in the first place.
The usual causes are simple:
- The tag was missed at coding time, so the cost never reached the invoice screen.
- The invoice was written from memory, not from the list of tagged costs.
- The job closed early, and its final invoice left out late purchases.
- The cost was personal. The owner bought something for themselves and later said it was for a customer, or the reverse. A purchase that turns out to be personal is an owner draw rather than a business cost; see recording owner draws.
For the bookkeeper, the fix depends on timing. A cost from last month can usually still be invoiced. A cost from a closed year should not be moved into that year's income; bill it now and let it land in the current period, or remove the billable tag and leave it as an expense. Either way, note the decision on the unbilled report, so the same line does not reappear next month.
For a client who rebills costs often, the unbilled report is worth sending every month. It takes a few minutes to prepare when every billable line was tagged at coding time.