What is travel and entertainment expense?
Costs for employee travel, meals, and client entertainment. Abbreviation: T&E. A wine shop books this week's client dinners here, even before the buyer is reimbursed.
Definition
Travel and entertainment expense is the period cost of employee trips, meals, and client hosting that support the shop. On the books, this is an Income Statement cost, not the cash that later reimburses the employee.
A wine shop records a buyer tasting trip and a restaurateur dinner on this line. The meals already happened; the reimbursement check may still be unwritten.
People often shorten the name to T&E. Accrual books use the week of the dinner, even when the report is still sitting in a folder.
This cost is the period's travel and meals. It is not the wine that left with a sale, and it is not a ticket bought for a trip that has not happened yet.
Where it shows up
P&L: Located in operating expenses.
Balance Sheet: Related to reimbursements still owed to employees.
Cash flow: Decreases when the report is paid, reported cash from operating activities decreases.
See also: Expense Report · Operating Expenses · Spend Policy
When you look at your Income Statement, this cost sits in the keep-the-doors-open block. Bottle sales sit above it as revenue.
When the figure is high, the shop hosted more clients or sent more people on the road. When it is low, fewer trips or dinners landed in the period.
The Balance Sheet does not keep this period's travel cost after the close. Unpaid reports sit in accrued liabilities until the employee is paid back.
On the Statement of Cash Flows, the reimbursement is the cash event. Cash from operating activities falls when the report is paid.
Operating expenses are the ongoing costs of running the shop that are not the bottles that sold. This travel cost is one of those keep-the-doors-open lines.
A card swipe can sit in credit card payable until the card is paid. The cost still belongs on this line in the week of the dinner.
How it works
An employee pays for a dinner or a train ticket on a buying trip. That cost belongs to this period even if the shop's cash has not moved.
If the employee paid out of pocket and has not been reimbursed, the shop debits this cost and credits accrued liabilities. The meal already happened.
If the shop paid on a company card, the debit is still this cost. The credit is the card payable until the statement is paid.
A receipt or boarding pass sits behind the entry. Those papers prove the trip so the books can match the week.
Stay with this period's travel and meals when you read the line. A flight bought for next quarter is still unused; it is not this month's cost until the trip is taken.
Do not treat the reimbursement as a new cost if the dinners were already recorded. The payment clears the liability; this cost was booked when the meals happened.
Selling, general, and administrative expenses often hold this line in a grouped overhead view. The meaning does not change: it is still the period's travel and hosting.
After the month closes, this line is part of the period's profit story. Next month starts the count again from zero.
Example
Oak & Vine Wine sends a buyer to a regional tasting and hosts two restaurateurs the same week. The dinners and fares total $480, and the buyer has not been reimbursed.
The shop records:
Debit: Travel and entertainment expense $480
Credit: Accrued liabilities $480
This cost hits the Income Statement, and accrued liabilities (a liability) go up by $480. Cash has not moved.
Bottle revenue this week is $12,000. After the $480 of travel cost, $11,520 is left to cover rent, wages, and everything else.
When the shop pays the buyer, it clears the $480 liability and cash falls. This cost stays at $480; only the liability and the bank account move.
If the same dinners had gone on a company card, the credit would have been the card payable instead. The Income Statement still shows $480 of this cost for the week.
Common mix-ups
Travel and entertainment expense is not the same as the reimbursement check. The cost is the week of the trip or dinner; the check is the later settlement.
Travel and entertainment expense is not the same as a personal meal. A dinner that is not for the shop's work stays off this line.
Travel and entertainment expense is not the same as product cost. The wine that sold is cost of goods sold; this line is the travel and hosting around the sale.
Related terms
- Expense Report: An employee's submitted record of business expenses to be reimbursed.
- Spend Policy: The written rules for what employees may buy and how it must be approved.
- Operating Expenses: The ongoing costs of running the business that are not direct costs of sale.
- Corporate Card Program: Company-issued cards used for employee purchasing under set rules.
- Expense Reimbursement: Paying an employee back for out-of-pocket business spending.
- Selling General And Administrative Expenses: The grouped overhead costs of selling, administration, and management.
- Source Document: The original receipt, bill, or statement that supports an entry.
- Budget Versus Actual: The comparison of planned amounts to what actually happened.