Journal entry for mileage expense is to record the business expenses.
However, the way business incurs is through different medium.
Employees need to travel as part of their work responsibilities.
Business doesn’t necessarily incur expenditures in its name.
Its employees can incur on its behalf.
Mileage expenses incurred shall be well within the entity’s internal policies to avoid employees exploiting this privilege for personal benefit and to meet the statutory requirements, if any.
There will not be any further brag to glance at the Journal entry for mileage expense. Here it is
An employee settlement account is a current liability.
It’s a kind of parking account until the happening of reimbursement of funds to the respective employees.
Journal entry after the reimbursement is
Thus, employee settlement GL is offset in the above two journal entries.
How do you evaluate mileage expenses for business purposes?
There is a good chance that personal expenses are purported as official. So, the employers/business entities have some established controls to curb these methods.
Some of the customary practices are
- Travel expenses shall be subject to review by at least the Manager for amounts greater than $100
- Need to obtain prior approvals for such mileage expenses
- Domestic travels shall not be through Airways
- Submission of proof of incurring expenditure within 30 days
- Travel expense bills shall be in the name of the employee
- Expenses shall be well within the range prescribed by the state. For example, the IRS specifies the maximum rate per mile
However, there can still be management overriding controls.
In other words, business officials or top management can exploit this tolerance and bypass the requirements through their authority.
Auditors play a critical role in uncovering those acts.
Business needs to get audit of their books as per the respective statutory requirements. Thus, the audit team evaluates the authenticity, occurrence, and nature of such expenses.
How to Track the Mileage Expenses?
An employee who uses personal vehicles for office purposes has to maintain a record of their travel.
The record shall contain the details such as
- Date of Travel
- Kilometres or Miles Reading (before and after the Journey)
- Purpose of trip
- Start and End points of the Journey
Mileage Allowance
You may have heard of the term mileage allowance.
IRS allows taxpayers to deduct the mileage expenses relating to the business purpose, such as attending client meetings, transport expenses to buy goods, etc.
These expenses are incurred when taxpayers use their vehicles for business purposes.
No entitlement of daily commuting expenses are not deductible.
Frequently Asked Questions
Are Mileage Expenses eligible as a charge against the business income?
Yes, that’s correct. The only condition here is that business needs to incur those as part of performing the business obligations.
How do you record the Mileage expenses?
We can consider the mileage expenses to be similar to other reimbursable costs to employees, such as internet expenses and data/voice charges.
Debit the Mileage expenses and credit a current liability as the settlement happens within 12 months.
Do these are qualified for taxation purposes?
The mileage expenses shall be relating to business operations. Even though company employees incur these expenses, they are eligible expenses for taxation.
Conclusion
Mileage expenses are the fuel expenses incurred while using a personal vehicle to meet obligations at the workplace. So, these are eligible for business purposes due to their nature.