What are Meals and Entertainment Expenses?

Definition

Meals and Entertainment Expenses are business-related costs incurred for meals, hospitality, client interactions, employee gatherings, business travel, or other activities intended to support legitimate business purposes. Their accounting and tax treatment depends on the nature of the expense, the business purpose, applicable tax rules, and the organization's internal expense policy.

For finance teams, these expenses require clear documentation because a transaction should demonstrate who incurred the expense, when and where it occurred, its business purpose, and the parties involved when relevant. Proper classification supports accurate expense reporting, financial reporting, and tax documentation.

Table of Contents

Types of Meals and Entertainment Expenses

Business meal expenses can arise from employee travel, meetings with customers or suppliers, conferences, team events, and other business activities. Entertainment-related spending may involve activities associated with relationship building or organizational events, subject to applicable tax and accounting rules.

An Entertainment Expense is generally recorded separately from ordinary meals when the organization's accounting structure or applicable regulations require distinct treatment. This distinction helps finance teams apply appropriate policies and maintain consistent reporting.

  • Business meals: Meals connected to business discussions, travel, meetings, or other qualifying activities.
  • Client and supplier meals: Meals involving external business relationships where the business purpose is documented.
  • Employee meals: Meals provided during qualifying business activities, meetings, events, or travel.
  • Business events: Eligible costs associated with organized business gatherings or functions.

Documentation and Approval Requirements

Strong documentation connects an expense to a legitimate business purpose and provides evidence for accounting review. Employees should generally record the date, amount, location, participants where relevant, and business purpose, while retaining receipts or other supporting records when required by company policy or applicable rules.

An Entertainment Expense Policy can define eligible categories, documentation requirements, spending thresholds, approval responsibilities, and required supporting information. Clear rules allow employees and reviewers to apply consistent standards before reimbursement or posting.

Accounting Treatment and GL Coding

After an expense is submitted, finance teams typically review the transaction, validate supporting information, assign the appropriate expense category, obtain required approval, and post the transaction to the accounting system. Accurate gl coding helps ensure that meals and entertainment spending is reported in the correct account, department, cost center, project, or entity.

For example, a customer dinner may require different accounting treatment from an employee team meal. Separating these categories gives management clearer visibility into spending and helps finance teams apply the relevant reporting and tax rules consistently.

Accruals and Period-End Accounting

Meals and entertainment expenses may need to be accrued when qualifying services or activities have occurred but the related invoice or reimbursement has not yet been recorded. Recurring business expenses can also require estimation based on historical patterns and available operational information.

Accruals Discovery For Recurring Expenses Without PO can support the identification of recurring non-PO expenses by using historical data and other inputs to improve accrual visibility.

Finance teams can also establish rules through Configuring Accruals Policy so recurring expenses are handled consistently with the organization's accounting policies, GL structure, and period-end procedures.

Policy Controls and Business Use

A well-designed meals and entertainment process should distinguish ordinary business expenses from transactions that require additional review. Companies can define eligible expense categories, approval levels, receipt requirements, business-purpose documentation, and treatment of exceptions.

One Time Expenses may require different review considerations from recurring employee or business expenses because they do not follow an established spending pattern. Finance teams can use appropriate categorization to maintain visibility into unusual or event-driven spending without mixing it with recurring operating costs.

These controls also help management analyze spending by employee, department, customer activity, project, location, or business purpose. Consistent classification improves budgeting and supports more reliable financial decisions.

Summary

Meals and Entertainment Expenses cover qualifying business-related spending on meals, hospitality, employee activities, and related events. Effective management depends on documenting the business purpose, applying appropriate accounting classifications, following approval requirements, and maintaining records that support financial reporting and applicable tax treatment. Clear policies and consistent GL coding give finance teams better visibility into spending while supporting accurate reimbursement and accounting processes.