How do I track and bill reimbursed employee expenses in QuickBooks Online?

In QuickBooks Online, a clearing account is the clean way to handle an expense an employee pays personally and you later repay through payroll. The expense creates a negative balance in the account, the payroll repayment brings it back to zero, and the billable charge flows onto the customer’s invoice.

Set up the clearing account

Create the holding account first. A bank type account is used because QuickBooks Online accepts it as the payment account on an expense form.

1. Select the Settings gear, then Chart of accounts.
2. Select New.
3. Set the Account type to Bank and the Detail type to Cash on hand.
4. Name it something like Reimbursement Clearing. Avoid the name Undeposited Funds, which belongs to a different Intuit feature.
5. Select Save and close.

The account should start at zero and return to zero after every expense and repayment cycle.

Record the employee’s expense

One setting has to be on before you start. Select the Settings gear, then Account and settings, then Expenses, and turn on Make expenses and items billable.

When the employee pays for something on the company’s behalf, enter it against the clearing account:

1. Select + New, then Expense.
2. Set the Payment account to Reimbursement Clearing.
3. Choose the employee as the payee, then fill in the date, category, amount, and description.
4. Mark the Billable checkbox and select the customer or project in the Customer column.
5. Select Save and close.

The clearing account now shows a negative balance equal to what the business owes the employee. That is expected, and the payroll repayment clears it.

Where does payroll post it?

Intuit sells three payroll plans inside QuickBooks Online: Core, Premium, and Elite. All three share the same screens, and the posting account is set on the employee’s pay type, not in a company-wide payroll setting.

1. Select Payroll, then Employees, then the employee’s name.
2. Select Edit employee and open the pay section.
3. Add Reimbursement as a pay type.
4. In the account field beside that pay type, choose Reimbursement Clearing.
5. Save the employee.

When you run payroll, enter the repayment amount on that pay type. Payroll then debits the clearing account, and the balance returns to zero. Reimbursement pay types are non-taxable by default, so the repayment does not inflate wages.

What if payroll cannot map it?

The standalone QuickBooks Payroll product keeps its account mappings in its own accounting preferences, separate from QuickBooks Online. Third-party payroll services post whatever their export or sync allows.

Where the repayment cannot be pointed at the clearing account, record it yourself. An expense form with your bank as the payment account and the clearing account as the category works. A journal entry that debits the clearing account works too.

Bill the customer

The billable charge waits on the customer’s record until you invoice it.

1. Select + New, then Invoice.
2. Choose the customer.
3. Find the charge in the panel on the right, usually headed Add to invoice.
4. Select Add, then Save and send.

The Expenses settings include a Track billable expenses as income option. With it on, the invoice line posts to income; with it off, the line offsets the original expense instead.

Confirm the balances

After payroll runs, open the Chart of accounts and check the clearing account. It should read 0.00.

If the negative amount is still there, the payroll item posted somewhere else. Correct the account on the employee’s pay type, or post a journal entry that debits the clearing account by the difference.

Once the account clears and the invoice goes out, the expense, the repayment, and the customer charge are each recorded exactly once.