Expense reports play a critical role in helping you understand your business's financial status.
- Expense reports show how much money is being spent within the whole company, a department or on a project.
- They can also be used by employees for reimbursement of business-related expenses.
- Most accounting software offers the ability to create expense reports.
- This article is for small business owners who want to learn more about what expense reports track and how to create one.
To have a full grasp of your business's finance, it is critical to know exactly how your money is being spent. Helping to track all of that outgoing money are expense reports. These reports can give you an accurate look at how much money is being spent within your business. To make sure you keep accurate records, it is important to understand what expense reports are, how they are used, what is included in them and why they are important.
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What is an expense report?
An expense report reflects expenses for a business, department, project or employee. These reports may account for specific expenses incurred on an individual basis, or aggregate spending over a set period of time by category, payee, or other factors.
Expense reports allow business owners and managers to track cash outlays, which is critical to assessing the financial health of the business, identifying efficiencies, and measuring and increasing profits. Expense reports also help employees who need to be reimbursed for approved business expenditures.
What is included in an expense report?
Expense reports come in various forms. Many are cumulative and show total spending for a company or department over a certain period of time (a month, quarter or year, for example).
Expense reports can also be more specific and document individual expenses for a particular employee or project. These reports include:
- The date the expense was paid
- The payee or vendor the money went to
- Whether the expense is allocable to a specific client or project
- The total amount paid, including taxes, commissions and fees
- The category or type of expense
In addition to these cursory details, reports may include notes about either the total amount paid or specific items, such as why the cost was incurred or any additional anticipated costs related to the same client or project.
Key takeaway: 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.
Why expense reports are important
Expense reports are important because they allow managers to track the spending of the company or a particular department or team – especially costs related to a specific client or project.
In addition to helping management, expense reports allow employees to get reimbursed for out-of-pocket expenses they pay related to the business, including for travel, or to entertain clients or prospective clients.
Some common uses for expense reports include:
- Tracking department and company spending and overall cash flow
- Calculating profits by deducting expenses from gross revenue
- Reimbursing employees for eligible business expenses
- Tracking expenses related to a product line or a specific project or client
Different companies use expense reports for different purposes. For example, consultants and lawyers commonly use these reports to track expenses related to a particular client, while manufacturing companies track expenses related to certain product lines. Sales reps use them to report travel and entertainment expenses and get reimbursed.
Did you know? Expense reports are used by businesses and sole proprietors for tax purposes as a way to document expenses they can deduct on their tax returns.
|Employee wages||Employee wages and benefit expenses|
Supplies, equipment and utilities
|Rent||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|
|Insurance||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
Tip: 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.
How to create an expense report
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:
- Determine what expenses you want to include in your report.
- List the expenses that meet your criteria, including the details listed above.
- Total the expenses included in your report.
- Add notes about expenses incurred or total paid.
- Date, number and title of the report based on what it includes.
Expense report FAQs
Who can submit an expense report?
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.
What is expense report software?
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.
What is considered an expense?
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.
What is a monthly expense report?
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.