The phrase refers to revenue generated when a business invoices its clients for costs that were initially incurred by the business on the client’s behalf. For example, if a law firm pays for a court filing fee for a client, and then bills the client for that exact amount, the reimbursement is considered revenue. It’s essential to differentiate this from a markup on expenses; only the direct reimbursement is categorized this way. A concrete example would be travel costs incurred while working on a client project, subsequently billed back to the client.
Recognition of this type of revenue is important for accurate financial reporting and tax compliance. It clarifies the actual profitability of the business by separating true service revenue from reimbursements. Historically, tracking and classifying these reimbursements accurately may have been challenging, especially for smaller firms, but accounting software now provides more streamlined solutions. Proper tracking helps maintain transparency and avoids overstating actual revenue figures.
