Instant payment on behalf of another person

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This discussion clarifies the correct journal entries for Company A when it pays a contractor (B) on behalf of another company (C), with the expectation of reimbursement from C. The key is to treat the payment as a receivable from Company C, not an expense for Company A. The entries involve debiting 'Receivable from Company C' when paying B, and then debiting 'Bank/Cash' when Company C reimburses A, effectively clearing the receivable.

abhijit majumder

abhijit majumder (Querist)
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25 September 2025 Sir
Company A done some construction work through a contractor 'B' for Company C.
ie the construction work is for Company C but due to non-availability of manpower in Company C, on request of Company 'C' ,Company A execute the job .
The Company C requested Company A to make the payment to Contractor 'B' & latter Company C will reimburse the amount to Company "B".
My query is:
What will be journal entry in the books of Company 'A'.
Abhijit

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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25 September 2025 The journal entries in the books of Company A, when it pays Contractor 'B' on behalf of Company C (expecting reimbursement from Company C), should reflect that the amount paid is recoverable from Company C and does not ultimately impact Company A’s P&L. The correct treatment is to record the payment as a receivable (asset) from Company C, rather than as a direct expense for Company A.

Initial Payment to Contractor 'B' (On Behalf of Company C)
When Company A pays Contractor 'B', the entry should be:

Debit: Receivable from Company C (or "Accounts Receivable – Company C" / "Reimbursable Expenses")

Credit: Bank/Cash

This reflects that Company A has made the payment, but it is not their expense—it is recoverable from Company C.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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25 September 2025 When Reimbursement is Received from Company C
When Company C reimburses Company A, the entry should be:

Debit: Bank/Cash

Credit: Receivable from Company C (or "Accounts Receivable – Company C" / "Reimbursable Expenses")

This clears the receivable, showing that the reimbursement has been collected.

abhijit majumder

abhijit majumder (Querist)
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26 September 2025 Many sincere thanks to Sir Dhirajlal Rambhia for very very clearly analysis the Journal entries. It help immensely to clear the doubt. These types of situation is a very common in State Govt owned Companies. Here both Company A and Company C are the State Govt owned Company.
Abhijit

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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26 September 2025 You are welcome...

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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26 September 2025 Good luck...

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