Director claims vs supplier invoices: how to record each one

Three documents that look alike

At month-end, a client's pile of documents usually holds three different things that look almost identical: a receipt for something a director paid for out of their own pocket, a receipt for something the company paid for there and then, and an invoice from a supplier that hasn't been paid yet. On paper they're all “a receipt for an expense”. In the books, each one is recorded differently.

How to record a director claim

When a director pays a business expense personally, for example fuel for a client visit or a software subscription on their own card, the company owes them that money back. The usual entry is:

• Debit the relevant expense account, such as travelling or office expenses
• Credit amount due to director, often kept as a director's current account

When the company reimburses the director, debit amount due to director and credit bank. The expense stays in the right account and the director's balance goes back to zero.

Two things make director claims harder than they look. The receipt is often in the director's own name, or has no company name on it at all, so it needs to be tied clearly to a business purpose. And directors tend to submit claims in batches, sometimes months late, which is exactly when receipts go missing or get claimed twice.

Keep the supporting document

For an expense to be deductible, it has to be wholly and exclusively incurred in producing the business's income (section 33(1) of the Income Tax Act 1967), and LHDN expects business records to be kept for seven years. A photo of the receipt, filed against the claim, makes both easy to show later.

How to record a cash purchase

A cash purchase is the simple case: the company paid at the time, from petty cash, the bank account or a company card. Debit the expense and credit cash or bank. There's nothing left to settle, so the main risk is booking it twice, once from the receipt and again when the same payment appears on the bank statement.

How to record a supplier invoice

A supplier invoice is a bill the company still has to pay. Record it when it arrives: debit the expense (or stock, or an asset) and credit accounts payable under that supplier's account. When it's paid, debit accounts payable and credit bank.

Recording the payment as a fresh expense, instead of clearing the payable, is a common way the same cost ends up in the accounts twice. So is booking an amended invoice as a new one when it should replace the original.

What goes wrong when they're mixed up

• A director's claim recorded as a cash purchase credits the bank for money the company never paid, so the bank reconciliation won't balance.
• A supplier invoice recorded as a cash purchase hides what the company still owes, and the real payment later looks like a second expense.
• A cash purchase recorded as a director's claim leaves a balance owed to the director that doesn't exist.

None of these is hard to fix one at a time. The problem is volume: when hundreds of unlabelled documents land in a WhatsApp group at month-end, someone has to look at every one to decide what kind it is.

Stop chasing receipts in the first place

Most of the work isn't the journal entry. It's collecting the documents and sorting them, and that's the part Krani takes over. Add Krani to the WhatsApp group a client's staff and directors already use, and each receipt they send is acknowledged with a tick, sorted into a cash purchase, supplier invoice or director claim, and matched against the client's supplier list. Possible duplicates and amended invoices are flagged before anything is posted. See how it works on the WhatsApp receipt capture page, and how each receipt is read on the receipt OCR page.