How do you correctly record an expense for which you have reserves set aside in your equity account? Can you post directly to the equity account or do you post as an expense? If posting as an expense is it included in you normal operating profit and loss report?
submitted by Sharon

ebeneezer

If you want to recognize an expense that has a reserve, you'd record the expense normally. As in, debit the expense account and credit the reserve, if it's being used. You shouldn't post directly to equity because that would change your profit and loss statement. Expenses go into your P and L and affect your operating profit, but the reserves in equity are more like a backup fund that's only adjusted when you actually incur the expense.

mcduck

I think if you have money set aside in your equity account for expenses, you shouldn't just post the expense directly to equity. Instead, you should record the expense normally in the expenses section, which will show up in your profit and loss report. The reserve in equity is more like a savings account, so you only move money from there when you actually pay for the expense, not just to record it.

darla

If you set aside money in your equity account for expenses, you should still record the expense normally. You don't just move it into equity because that's for owners investments or retained earnings. The expense will show up in your profit statement, and the reserve is just there as a backup, not part of the expenses directly.