The name itself indicates that this traveling expense relates to expenses incurred by entity employees or directors. The purpose of travel shall be related to the entity’s business operations. Therefore, the purpose shall not be personal.
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Traveling expenses Examples:
Let’s see a couple of instances relating to traveling expenses
- Directors’ Cost of travel to other Cities to attend some business meetings or Client Meetings
- Cab Expenses (Local Travel)
- Airfare and insurance charges, if any, relating to the business travel
- Expenses incurred for the Meals, Communication charges, and Wi-Fi charges
- Tips or surcharges paid for using any of the above facilities as part of travel
- Parking Fees, Toll Charges, Cab Waiting Charges, and Luggage Porter Charges
What’s the Journal Entry?
Traveling expenses are a Nominal Account that flows into the Profit and Loss A/c. As this GL is an expenditure Account, the appropriate accounting treatment is to debit this GL Account in the Journal Entry.
Let’s see what the corresponding Credit is.
Credit is for the Liability Account. Here, the Liability Account is named Cab Charges Payable, Travel Charges Payable, etc., based on the nature of the liability.
There might be instances where there is no requirement to recognize the liability, such as Meals, tips, parking fees, etc. These expenditures are paid immediately, and there might not be any bills or invoices. So, the Credit, in this case, is the Cash Account.
Journal Entry for recording the Travelling expenses:
(Being the travel charges incurred for the ABC Manufacturing deal)
(Being the travel charges paid)
Frequently Asked Questions
1) Do the Travelling expenses of a Salesman form part of Direct or Indirect Expenses?
The category of expenses depends on the nature of the entity’s business.
A salesman’s Travel expense is a direct expense for entities exclusively in Marketing/Product Sales (not manufacturing). That’s because those expenditures drive the entity’s business operations.
For Entities not falling into the above category, those travel expenses fall into the Marketing Expenses category, which is an indirect expense. Therefore, it depends on the business category in which the entity operates.
2) What do Accommodation expenses mean?
Accommodation expenses cover hotel or motel stays. These expenses include food, laundry service, telephone, internet, GST, and service charges. You treat accommodation expenses as part of travel expenses and count them as indirect business costs.
Follow a simple rule: check if accommodation expenses support business activities. Always focus on the importance of each expense to the business.
3) Paid for traveling expenses journal entry:
The Paid for Travelling expenses journal entry records the cash/bank payment made for travel and related expenses incurred for business purposes. Let’s examine the nature of accounts and the accounting rules that apply.
Accounts Involved – Travelling expense and Bank Account
Nature of Accounts –
Traveling Expenses is a Nominal A/c – Expenditures and Bank Account is Real A/c – Asset
Accounting Rules:
The Golden rules of accounting applicable in this scenario are below.
Nominal Account: Debit the expenses and Losses, Credit the gains and incomes, and
Real Account – Debit what comes in and Credit what goes out
Paid for traveling expenses, journal entry is
4) Which GL account is debited for travelling expenses?
There are no rules for naming an Account. The GL Description shall depict the nature of the Account. For example, if the GL relates to telephone expenses, it shall not fall into conveyance expenses. Therefore, the traveling expenses GL is used as a debit to record travel expenses in general.
Conclusion:
Traveling expenses are expenses incurred in relation to business travel. The purpose shall not be personal. The thumb rule is to check if those expenses help further business operations. This travel expenses category is broad enough to cover accommodation charges, telephone and internet charges, and ancillary charges incurred along with the hotel expenditure.
Debit the Travelling expense and Credit the Bank Account to record the Journal Entry. If the transaction happens on a credit basis, two entries are recorded. The first is to debit the traveling expense, and the Credit is to the Liability Account. The second entry debits the Liability account and Credits the bank account. The net effect is knocking off the Liability Credit in the first entry and the Liability debit in the second. So, technically, the journal entry is the same as the first scenario. It’s just a deferment of recording the complete transaction effect.
We hope this article clarifies the concept of traveling expenses. If you have any questions, please contact us through “Contact Us.”
