How to categorize clothing purchased for clients?

@SWBStyle 

When you purchase the clothing, I would record it as a clothing expense or something similar.  Then, when you return the items, record the refund as a reduction in clothing expenses (assign the deposit to the clothing expense account).

To be clear, when a client reimburses you for the cost of the clothing, that is definitely gross income.  However, you will have the offsetting clothing expense so you won't have any net income (what you care about) unless you mark up the clothing.

I can guide you on how to categorize your clothing purchase in QuickBooks, @SWBStyle.
 

I'll make sure you can categorize your clothing item in QuickBooks Online. This way, your books, and reports are accurate at all times. 

I agree with Rainflurry that you categorize your clothing items as Expenses in QuickBooks. Then you can turn on the billable feature for reimbursement purposes. 

Here's how: 

1. Go to the Gear icon, then select Account and settings.
2. Choose the Expenses tab.
3. Click Edit ✎ from the Bills and expenses section.
4. Turn on the following:

• Show Items table on expense and purchase forms
• Track expenses and items by the customer.
• Make expenses and items billable.

      5. Set up the Markup rate, Billable expense tracking, and Sales tax charge (optional). 

      6. Hit Save. 

After that, you may now record your customer's expenses by following the steps below: 

1. Go to the New tab and select a transaction type (Expenses, Check, or Bill). 
2. Pick Expenses in the Category drop-down.  
3. Enter the Amount in the field and check the Billable box.
4. Select your customer's name and tick the Tax box. 
5. Hit Save and close. 

To reimburse the cost, link the billable expense to your customer's invoice. For the complete steps, check out this article for complete steps: Enter billable expenses in QuickBooks. 

On top of that, I'd suggest working with their accountant for the right categories to use. If you don't have one, visit this link to get an expert: QuickBooks Certified ProAdvisor.

Additionally, visit these articles below to find out what to do if you see bill payment expenses in cash not applied on your profit and loss and other topics:

• What to do if you see unapplied cash bill payment expense on your profit and loss
• Enter and manage expenses in QuickBooks Online

If you have any questions about expenses, don't hesitate to leave me a line. I'd be happy to give you some guidance, and I'll be here if you need anything. Take care.

@Rainflurry thank you- and yes I mis-typed and meant net income not gross income.

@MichelleBh - yes- they are an expense but then the expense has categories and I don’t see any category that really fits these items.  

also by making the expense billable though QuickBooks, I noticed QB charging me a fee when I should not be taking a hit for an item. If I purchase the dress for $100 then I should be reimbursed $100 and not have to worry about a 1-3% fee. Is there something I have set wrong for the billable expense? Thanks!