Direct and Reimbursable Expenses

You can record two types of expenses related to revenue-producing activities: direct expenses and reimbursable expenses.

• Direct expenses are revenue-generating expenses associated with regular, revenue-producing projects. They must be recovered or absorbed by labor or fee billings.
• Reimbursable expenses are also associated with regular, revenue-producing projects, but they are billed as line items over and above your labor or fee billing.

You differentiate between these two types of revenue-producing project expenses by creating two ranges of account numbers in your chart of accounts, one for reimbursable expense accounts and one for direct expense accounts.

Most enterprises who have a mix of contract types (in which expenses can be part of the fee or billed to the client as line items) set up both ranges, using identical account numbers except for the first digits, as in the following example:

• 519.99 Reimbursable Consultant Budgets
• 599.99 Reimbursable Expense Budgets
• 619.99 Direct Consultant Budgets
• 699.99 Direct Expense Budgets

Indirect expenses (accounts 700.00 through 799.99 in the standard chart of accounts) are expenses that are associated with overhead or promotional type projects. Examples of indirect expenses include electricity, office supplies, payroll benefits, and vacation time. These expenses are not directly associated with any one project; rather they are the general operating costs of your enterprise. The overhead allocation process distributes these expenses among your revenue-producing projects.