To manage your business’s financial health effectively, it’s essential to have a clear picture of where your money goes. Expense reports are central to this understanding. These reports offer a detailed view of your business’s expenditures. For precise financial record-keeping, it’s crucial to understand expense reports, their usage, their components and their significance.
An expense report serves as a comprehensive record of a business’s expenses and may cover a particular department, specific project or individual employee. An expense report meticulously organizes expenditures and categorizes them by various criteria, such as the payee and the nature of the expense.
Expense reports are vital tools for managing small business finances. They help business owners and managers monitor financial outflows to gain pivotal information to evaluate the company’s financial standing, pinpoint cost-saving opportunities and enhance profitability. They simplify the process of filing tax returns, claiming tax deductions and ensuring a smooth auditing process.
Expense reports facilitate employee reimbursements, such as mileage reimbursements, to help pay team members promptly for approved business-related expenses.
Expense reports 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.
Expense reports typically contain the following elements:
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.
When constructing an expense report, the primary goal is identifying the expenses to be included. Expenses can be based on the payee, spending category (type of spending) or a particular project or client to which the expense was related. It can also be based on the employee who paid the cost.
The process for building an expense report is straightforward:
Expense reports are crucial because they empower managers to oversee the financial activities of a department, team or organization ― particularly expenses associated with specific clients or projects. Besides aiding managerial oversight, expense reports ensure employees receive reimbursements for business-related expenses they’ve borne, such as business travel or client entertainment.
Expense reports are essential because they do the following:
You can run expense reports for various categories depending on your industry and the business expenses you’re tracking. For example, consultants might log client-specific expenses while manufacturers might track product-related costs. Sales representatives often record and claim travel and entertainment expenses.
Here are some examples of typical expense report categories and what they include:
Expense report category | Possible included expenses |
---|---|
Employee wages | Costs related to employee payments and employee benefits |
Office expenses | Costs for supplies, equipment and utilities |
Rent | Commercial lease payments or mortgage payments (preferably broken out into principal and interest payments) for business facilities |
Repairs and maintenance | Expenses for fixing or maintaining facilities or equipment |
Legal and professional | Costs related to a specific client or project |
Insurance | Expenses for small business insurance, including general liability, professional liability, workers’ compensation or commercial auto policies (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 | Costs related to flights, hotels, rental cars and possibly incidentals |
Marketing and advertising | Ad buys and creative costs |
Work vehicles expenses | Gas, insurance and maintenance costs for business vehicles |
Expense reports are crucial for keeping accurate records to claim small business tax deductions for qualifying business expenses and to measure the profitability of a company and its specific activities.
Among our picks for the best accounting software, we recommend the following platforms for expense management and reporting:
Company policy and business type determine who can submit expense reports. In many cases, only managers can submit expense reports. In other instances, anyone who spends money for approved business purposes and must be reimbursed can submit one. Sometimes, anyone can submit a report, but a manager must endorse it.
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, dedicated software packages can help employees submit expenses for reimbursement. Spreadsheet programs, such as Microsoft Excel, can also be used to prepare expense reports manually.
An expense is any instance in which a business representative outlays cash for a business purpose. It can be to procure equipment, services and more. However ― especially for employees seeking reimbursement ― the outlay must be an actual business expense. Many companies have strict policies about this, so employees must 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 is to construct reports that present management with the most accurate and consistent view of the finances of the company or a particular department or product line.
A monthly expense report details company outlays paid over a given month. These reports are not typically used for employee reimbursement but 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 typically are organized by category or payee and can be tremendously helpful for companies to coordinate planning, budgeting and resourcing requirements.
There should be clear records of all money flowing in and out of your business. Expense reports create this documentation, whether for expenses being reimbursed to employees or those being compared against revenue in general reports. They’re how you get a handle on your company’s spending and make smarter decisions moving forward. Track your expenses now and you might have less costly ― or fewer ― ones before you know it.
Max Freedman contributed to this article.