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Help categorizing an unusual transaction

Hi folks, I wasn't sure how to summarize my question in the subject so please forgive the vagueness.

If I pay for something (via credit card) on behalf of someone else, and then they reimburse me in cash, how could I categorize that? It seems like marking it as a "Transfer" might be most appropriate, but then how would I categorize the cash? Also as a "Transfer?" Note that I do have a cash account that I've recently started using to track cash purchases, per the advice of some on this forum.

Thank you.

Comments

  • NotACPANotACPA SuperUser, Windows Beta Beta
    The 1st transaction is a Transfer to a new ASSET type account.  I call mine "Receivables".
    The 2nd transaction  is posted in your CASH account as a Transfer FROM "Receivables".
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  • I don’t know if this is considered best practice or not, but here’s what I do:

    Say I use my credit card to purchase groceries for my friend, and then he pays me back in cash. I categorize the credit card transaction according to what the purchase was for (Groceries). I then apply the same Groceries category to the positive cash transaction where my friend paid me back. Because both transactions are the same amount (one negative and one positive) and the same category, they zero each other out so all reporting stays accurate for how much was actually spent for that category.
  • jacobsjacobs SuperUser, Mac Beta Beta
    The responses above hit on the two ways to do this type of transaction:

    (a) If you have these transactions recurring, create a separate Asset account to use each time you make a purchase for someone else, and for when they pay you back. The purchase isn't an expense, it's a transfer to an asset -- money owed to you. When you get the payment, it's not income, it's a transfer from the asset to your bank account. I have an account like this I use for purchases I make for work for which I subsequently receive reimbursement.

    (b) If you have a transaction like this infrequently, it's probably not worth creating the separate asset account. You can do as suggested above, but I prefer to create a category -- I call it Exchange -- for the payment and and the reimbursement back in. It's basically the same as @[email protected] is suggesting, but by sing a unique Category, you can quickly run a report to see if you're owed anything.
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  • Just LurkingJust Lurking Mac Beta Beta
    Thanks everyone for the suggestions. This forum is a wealth of useful advice! That said, I'm still a little torn on what to do.

    @NotACPA has what I'm sure is the approach most consistent with Accounting rules, and that's appealing, but creating dual transactions is a little fussier than what I usually try to do for my personal Quicken spending.

    The method used by @[email protected] is the kind of keep-it-simple method that appeals to me in other areas of Quicken, but the one issue I see is that sometimes I don't remember how I categorized something. I'm trying to avoid creating too many new Categories, so sometimes I struggle to decide whether to use Category A or B, and this method relies on me either remembering or (more likely) taking the time to look up the previous category.

    @jacobs offers a possible compromise. I could always use the same Category, so there's nothing specific to remember. Being able to run a report is a bonus.

    I'm partly just thinking out loud here, forgive me, but I am open to any additional thoughts.

    One question for @jacobs: in terms of whether it's worthwhile creating a "Receivables" account, is it more about how large (material) are the transactions, vs. their frequency? I'm leaning towards using your (b) approach. My use case isn't extremely infrequent, but they tend not to be large compared to total monthly spend.
  • NotACPANotACPA SuperUser, Windows Beta Beta
    edited February 2020
    My approach would be preferable if the friend does NOT pay you back quickly.  That way you'd have a record of what's owed to you.
    If the friend DOES pay back quickly (say, as soon as you get home) ... I'd use your approach also.
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  • I love reading all of these ideas and perspectives. My method has worked well for me because I don't buy things on others' behalf very often, and when I do it's usually close friends who pay me back the same day. I also like having a record of what I actually spent my money on (books, clothing, food, etc.) even though I am quickly reimbursed for it, which is why I use the actual category for what was purchased.

    If I had large amounts of these types of transactions and wasn't paid back quickly, I would definitely set it up how @NotACPA has it. I'm also intrigued by @jacobs recommendation of setting up a dedicated category for these types of things, since there are definitely pros to doing that as well. I think the reason I have been doing it the way I have (using actual categories based on what is purchased) is because often my friends and I will split to the cost of things half-and-half. Usually I will pay the full amount with my credit card, and then my friend will pay me back half of the total cost (either with cash or via Venmo). When I assign both transactions the actual category (food, entertainment, etc.), my reporting then shows the correct net amount (half of the initial credit card transaction) that I actually spent on that category.
  • NotACPANotACPA SuperUser, Windows Beta Beta
    An Asset type account, as I recommend, is part of your Net Worth ... it's money that's owed to you.
    A Category, as @jacobs recommends is money that you've spent with no expectation of getting it back.  If you DO get it back, then his entries zero-out ... but the transactions won't show on your Net Worth.
    Also note that if the friend pays back VERY quickly ... then you could just show the transaction as a transfer from your credit card to cash ... which is the simplest of all.
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    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • FrankxFrankx SuperUser ✭✭✭✭✭
    @Austin,

    To quote you:
    " I think the reason I have been doing it the way I have (using actual categories based on what is purchased) is because often my friends and I will split to the cost of things half-and-half. Usually I will pay the full amount with my credit card, and then my friend will pay me back half of the total cost (either with cash or via Venmo). When I assign both transactions the actual category (food, entertainment, etc.), my reporting then shows the correct net amount (half of the initial credit card transaction) that I actually spent on that category."

    This is spot-on and clearly is the best way for the types of situations that you frequently encounter (and I too handle those situations likewise).  No need to get too formal here...


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  • jacobsjacobs SuperUser, Mac Beta Beta
    Frankx said:
    @Austin,

    To quote you:
    " I think the reason I have been doing it the way I have (using actual categories based on what is purchased) is because often my friends and I will split to the cost of things half-and-half. Usually I will pay the full amount with my credit card, and then my friend will pay me back half of the total cost (either with cash or via Venmo). When I assign both transactions the actual category (food, entertainment, etc.), my reporting then shows the correct net amount (half of the initial credit card transaction) that I actually spent on that category."

    This is spot-on and clearly is the best way for the types of situations that you frequently encounter (and I too handle those situations likewise).  No need to get too formal here...
    It's really whatever works for you. In my case, I would enter a split on the transaction, with half going to the proper expense category for my half of it, and the other half going to my Exchange category (or account), so I can easily create a report to see if there's anything I'm owed money for. I've sometimes bought concert tickets for myself and friends 6, 8 or more months before the event, and I'm happy to have them pay me back at the time of the event -- but I definitely need an easy way to be reminded if someone owes me money. That's why I prefer to have these amounts stick out so I can't forget about them. (Having a separate Exchange account, rather than just a category, makes the transactions not show up as expenses at all, and let's me see right in my accounts sidebar if I'm owed money.)

    I don't find it at all complicated to have this extra account, and to record transfers in and out when I make purchases and get paid back, but it certainly depends how often you do this as to what level of complexity you want; if it's pretty much a one-time thing, it's not worth setting up a separate account for it.
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  • Just LurkingJust Lurking Mac Beta Beta
    jacobs said:
    (Having a separate Exchange account, rather than just a category, makes the transactions not show up as expenses at all, and let's me see right in my accounts sidebar if I'm owed money.)
    Ahh, I didn't catch this at first. So you have an Exchange Category and an Exchange account? This is essentially the same as @NotACPA's approach, isn't it, in that your Exchange account is effectively a receivables asset account?

  • jacobsjacobs SuperUser, Mac Beta Beta
    I started out using an Exchange category many years ago, because that seemed simple. But once I started having more transactions, I found it better for me to use an Exchange account.

    I actually have one for my work expenses and one for my wife's work expenses. Sometimes one of us pays for something -- say, a flight to a conference -- which doesn't get reimbursed until the conference takes places several months later. I find it easier to have an account with all the expense out/reimbursement in transactions so I can make sure I haven't missed anything, and that things zero out periodically. 
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  • Just LurkingJust Lurking Mac Beta Beta
    jacobs said:
    I started out using an Exchange category many years ago, because that seemed simple. But once I started having more transactions, I found it better for me to use an Exchange account.

    I actually have one for my work expenses and one for my wife's work expenses. Sometimes one of us pays for something -- say, a flight to a conference -- which doesn't get reimbursed until the conference takes places several months later. I find it easier to have an account with all the expense out/reimbursement in transactions so I can make sure I haven't missed anything, and that things zero out periodically. 
    Makes sense. Do you also use an Exchange category or do you simply categorize as normal (flights for plane tickets, etc.?)
  • jacobsjacobs SuperUser, Mac Beta Beta
    @Just Lurking When I'm recording a business expense, I don't use any category. If I charge airline tickets to a conference on my credit card, I enter the purchase in the credit card account with no Category but a Transfer to my Work Exchange asset account. That records the charge on the credit card, no expense, and money I am owed in the Exchange account. When I get my reimbursement check from work, I record the deposit in my checking account, with a Transfer to the Work Exchange account to zero it out.

    I'd do the same with personal expenditure for friends/relatives, if I did enough of them. I don't. The main thing like this I have persoanlly is when I purchase tickets to a concert/event for us and others. I could use an Exchange account, or Exchange category, if I needed to track this very much, but since it's only a couple times a year, I typically just enter the full purchase as an entertainment expense, and when I get repaid by the friend, I record the deposit to the same expense category. That's not as proper, accounting-wise, but my volume of such transactions doesn't warrant -- for me -- doing anything more. 
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  • FrankxFrankx SuperUser ✭✭✭✭✭
    @jacobs,

    Just for the record...

    After you quoted me above... You first said " I would enter a split on the transaction, with half going to the proper expense category for my half of it, and the other half going to my Exchange category (or account), so I can easily create a report to see if there's anything I'm owed money for."  Effectively providing a different approach than I had endorsed...

    Then, after some back and forth you then said... "The main thing like this I have persoanlly is when I purchase tickets to a concert/event for us and others. I could use an Exchange account, or Exchange category, if I needed to track this very much, but since it's only a couple times a year, I typically just enter the full purchase as an entertainment expense, and when I get repaid by the friend, I record the deposit to the same expense category."  In which you reverted to exactly the approach I HAD endorsed...

    I am LOL right now and just have one question for you - "When are you running for office???"

    Thanks for the laugh - and take care!

    Frankx


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  • jacobsjacobs SuperUser, Mac Beta Beta
    Like any good politician, I can argue two sides of an issue, and parse words to show I didn't say what I said. ;)

    Now, in my defense…

    In my first post, I explained what I have actually done in the past, while stating "It's really whatever works for you." I used to record personal split expenses to an exchange account, and would still recommend it if you have more than an occasional instance of these types of transactions where you're owed money.

    In my last post, I said that I've now reverted to just using and expense account and not bothering with a separate exchange account.

    So, just for the record, there are three approaches being discussed in this thread, and I have done each of them at times:
    • The most torbust and accurate, accounting-wise, approach is what I still use for my and my wife's work reimbursements: separate asset accounts. I use this because of the volume of transactions and the need to quickly pull up a report to see what's outstanding.
    • I used to use a special category called Exchange to keep track of money spent  and owed. As proof, here it is in my Category list, where the name has been edited to remind me not to use it anymore:

    • For the limited times I have such personal transactions now, I have reverted to the simplest approach, which is to just put the full expenditure in a regular expense category, and then credit the deposit when I get paid back to thesame category to offset the previous expense. This is the least accurate, accounting-wise, until it zeros out, and might screw you up if you closely track your budget month-to-month.
    So, like any deft politician, I can sell you on the merits of whatever you want to hear! ;)
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  • FrankxFrankx SuperUser ✭✭✭✭✭
    @jacobs,

    thanks for the explantion.  I think you should be on that stage tonight!!  Let me know where to send my political contribution!!!
     :D 


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