Yes, they were correct to issue the 1099 reimbursement. They have to account for where their money went just like you do. You would enter this on your Schedule C as income and then enter the cost of supplies you purchased with that money as expenses.
When you enter your 1099-NEC, you will create the schedule C. As you walk through you will be able to enter additional income for the business. After you include the reimbursements, and deduct the product costs as supplies or expenses, you will effectively wash out the 1099 misc income.
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