Food expense to ledger... how to record?

It is a total expense. When you are building your chart of accounts you want to build accounts that accurately reflect the type of expense. When your tax return is being completed, you CPA will know from reading the trial balance how to handle the tax return.

Set up an expense item for Reimbursements -- Meals. You might also have one for Reimbursements -- Travel. Your CPA will know how to apply the tax codes (as they change annually). From a managing prospective, you will know how much you are spending in the categories better. As a hotel controller I looked at the amount of Reimbursements-Meals I had per sales manager as a relationship to sales booked. Are we booking business or having free lunches?

Hi Nick,

The simplest way is to have two accounts for meals, one designated as "Tax Deductible" and the other (you guessed it) "Non Tax Deductible". Just split your meal bill between the two.

At tax time it's then easy to see which items are to be excluded from the return.

Cheers, Ken Russell

I'd first need to know why only $50 of it is considered an expense for the company. Just because only a portion of something may be tax deductible does not mean that the entire amount is not a valid expense for the company. Generally, the only time I split out something from a meal expense is when the other portion is an advance (i.e. employee takes spouse along).

Your tax professional knows how to get to the proper deductions and, no, you can't just simply look at a balance sheet (more likely, income statement) and know what your taxes will be at a glance.

Furthermore, you would debit the expense and credit the cash... not the other way around.

Beverly

Tax law in Canada views meals thusly: if you take a client out for a meal, you are spending 1/2 the money on *yourself*. Unless you are paying for the meal as a travel expense, ie. working out of town and you are required to stay out of town, you cannot expense feeding yourself.

Therefore, 1/2 the meal is to entertain your guest, 1/2 is to fill your own belly.

Stephanie

"S.M. Serba" wrote

So then, if the client orders steak and lobster, and you order beenie-weenies......

His "half" is more than your "half".............

Or what if there are three clients you are entertaining. Yours is a quarter of the total bill (assuming that you all had substantially the same thing).

In that case, does Canadian law let you take the amount actually spent on others?

No, under current Canadian tax law 50% of expenditures on meals and entertainment are deductible for tax purposes (assuming that the entire amount is incurred for business purposes. Stephanie's explanation describes the conceptual rationale for the rule; the application is quite straightforward, whether or not anyone considers it "fair".

There has been some confusion in this thread about the distinction between "expenses" (for accounting purposes) and amounts that are "deductible" (for tax purposes). Let's try to be more precise.

"Paul Thomas, CPA" wrote ...

Create your chart of accounts with sufficient detail that you can effectively manage your expenses as the operator of your business AND to give your tax preparer sufficient detail to do your tax return. I am not a tax accountant (and have no desire to do that). Tax accountants have a lot of work keeping up with the tax code changes each year. They have specialized software to do tax returns. Work closely with your CPA to develop your chart of accounts. Not only will it make your job easier during the year. . . but it will hopefully shorten the time needed to produce your tax return (and that will save you money).

The original question has not been answered and I would also like to know: If you have a $100 meal with 50% limitation do you put half in the balance sheet? If not, how will you reconcile your retained earnings on your federal tax return. Remember too, that most tax software automatically excludes 50% of the amount you enter, so keeping to g/l accounts in the expenses will not help.

"Grant DeNormandie" wrote

Y'all are making work for yourself. Unnecessarily if you ask me. In a tax basis financial statement there will always be reconciling items, and users of those financials should know what those are, or IMO stop using the financials.

If you absolutely have to make work for yourself, then in a separate section of the INCOME STATEMENT record "non-tax items" like officer life insurance, the non-deductible half of meals and entertainment, penalties, etc. So the users can see those reconciling items and their amounts.

To me though, that's "make work" that unnecessarily clogs the financials and makes them more than likely less useful. Any time that you start splitting expenses up then the possibility exists that users would get a wrong impression of the actual expenditures for meals or other items you're splitting on the income statement.

responding to

The question is not about splitting entertainment expenses in the income statement but keeping the 50% non-deductible off the income statement so the retained earnings in the G/L balances with the retained earnings on the tax return.

"Grant DeNormandie" wrote

So work it out. Is it an asset? Or a liability? Or equity?

Geeez.

It's neither, it's a non-deductible operating expense. It properly belongs on the income statement.

Corporate returns have a specific section on the return to reconcile book to tax. And that is where these types of items get reconciled.

responding to

Thanks Paul. So will the reconciling adjustments have to be carried forward to all future returns?