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)

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)

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)

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)

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)

26 September 2025 You are welcome...

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

26 September 2025 Good luck...

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