An expense report serves as a comprehensive record of a business’s expenses and may cover a particular department, a specific project, or even an individual employee. An expense report meticulously organizes a list of expenditures and categorizes them by various criteria, such as the payee and the nature of the expense. The primary purpose of an expense report is to both facilitate reimbursement claims and simplify the process of filing tax returns, claiming tax deductions, and ensuring a smooth auditing process.
To effectively manage your business’s financial health, it’s essential to have a clear picture of where your money goes. Central to this understanding are expense reports. These reports offer a detailed view of the expenditures within your business. For precise financial record-keeping, it’s crucial to comprehend the nature of expense reports, their usage, their components, and their significance.
[Related Read: Guide on How to Create an Invoice]
Expense reports serve as vital tools for business owners and managers, enabling them to monitor financial outflows, which is pivotal for evaluating the company’s financial standing, pinpointing cost-saving opportunities, and enhancing profitability. Furthermore, expense reports facilitate the reimbursement process for employees incurring approved business-related expenses.
[Related: Want to easily manage expenses? See what the Top Expense Tracker Apps are.]
Expense reports can vary in structure. While some provide a comprehensive overview of spending for a specific duration (like a month or quarter), others focus on itemized expenses tied to a particular employee or project. Key elements of these reports encompass:
Beyond these primary details, expense reports might also feature annotations regarding individual expenses or the overall amount, elucidating the reason for the expense or any forthcoming costs tied to the same project or client.
Key components of an expense report include the date expenses were paid, who the money went to, how much was specifically spent and the type of expense it was.
Expense reports hold paramount importance as they empower managers to oversee the financial activities of a department, team, or the entire organization, particularly expenses associated with distinct clients or projects. Besides aiding managerial oversight, expense reports ensure that employees receive reimbursements for business-related expenses they’ve borne, such as business travel or client entertainment. Typical applications of expense reports encompass:
The utility of expense reports varies across industries, depending on what expenses you should track. For instance, consultants might use them to log client-specific expenses, whereas manufacturers might track product-related costs. Sales representatives often rely on them for recording and claiming travel and entertainment expenses.
Employee wages and benefit expenses
Supplies, equipment and utilities
Lease payments or mortgage payments (preferably broken out into principal and interest payments) for business facilities
Repairs and maintenance
Expenses for fixing or maintaining either facilities or equipment
Legal and professional
Costs related to a specific client or project
General liability, professional liability, or commercial auto insurance – or travel insurance for business travel
Taxes and licenses
Licensing costs and business registration fees or other taxes paid to local, state or federal governments
Travel and meals
Flights, hotels, rental cars and possibly incidentals
Marketing and advertising
Ad buys, as well as creative costs
Work vehicles expenses
Gas, insurance and maintenance costs for business vehicles
It’s important for small businesses to account for expenses in all of these areas, not only to keep accurate records to claim tax deductions for qualifying business expenses, but also to measure the profitability of a company and its specific activities.
When constructing an expense report, the primary goal is to identify the expense(s) to be included. This can be based on the payee, spending category (type of spending), or on a particular project or client the expense was related to. Or it can be based on the employee who paid the cost.
The process for building an expense report is fairly straightforward:
Those who can submit an expense report vary by business depending on company policy and how these reports are used. In many cases, only managers can submit expense reports, while in other instances, anyone who spends money for approved business purposes and needs to be reimbursed can submit one. Sometimes, anyone can submit a report, but it must first be endorsed by a manager.
[Related Read: Small Business Accounting Software Benefits and Costs]
Most accounting software can be used to prepare expense reports. All the software needs is the ability to export selected expenses, such as by payee, category, check number or other factors. In addition to traditional accounting software, there are software packages that specifically aid employees in submitted expenses for reimbursement. Spreadsheet programs like Microsoft Excel can also be used for manually preparing expense reports.
An expense is any instance in which a representative of a business outlays cash for a business purpose. It can be to procure equipment, a service or other things. But – especially in the case of employees seeking reimbursement – the outlay must be an actual business expense. Many companies have strict policies about this, so employees need to understand these policies before submitting expenses.
If expenses are only being considered for general expense reports (not related to reimbursement), then that’s a subject to be discussed with finance managers within the company – the goal being to construct reports that present management with the most accurate and consistent view into the finances of the company or a particular department or product line.
A monthly expense report details company outlays paid over the course of a given month. These reports are not typically used for employee reimbursement, but rather to track company or department spending, allocate expenses to specific projects or clients and compare expenses to revenue to determine a company’s overall profitability. These reports are typically organized by category, or payee, and can be tremendously helpful for companies to coordinate planning, budgeting, and resourcing requirements.