Definition
The term travel advance is used to describe a sum of money paid to an employee prior to business-related travel. An advance would cover reimbursable expenses such as meals, transportation, lodging, and incidental items. Companies can account for this cost as a prepaid expense or as accounts payable.
Explanation
While the popularity of credit cards has decreased the need for an advance, some businesses continue to offer employees this benefit. The size of the advance would take into consideration what the business would deem a typical per diem allowance. Standardized rates are available from organizations such as the U.S. General Services Administration, which publishes per diem rates for destinations within the Continental United States.
Companies will account for this cost in one of two ways:
If the company intends to collect the advance from the employee's paycheck, the dollars are booked to accounts receivable.
If the company allows the employee to complete an expense report associated with this travel, the advance is booked as a prepaid expense.
Expense reports are usually processed by the company's accounts payable department, and the documentation includes original receipts for the business-related expenses.
Related Terms
accounts payable, prepaid expense, accounts receivable, current assets, cash, electronic funds transfer, lockbox account, imprest account, cash over and short
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