Chapter 8, Problem 1DQ

What is the difference between an allowance and a reimbursement? How does this difference affect labor burden?

To determine

Differentiate allowance and reimbursement and its effect on labor burden.

Explanation of Solution

The allowances are paid to cover the out of pocket expenses of the employee; whereas the reimbursements are made to cover the actual expense of the employee. The allowances are subject to employment and income tax; whereas reimbursements are non-taxable.