What Is An Expense Report?

What is an expense report?

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.

What does an expense report include? 

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:

• The date of the expense transaction
• The recipient or vendor of the payment
• A paper receipt or digital record of the payment
• Linkage of the expense to a specific client or project
• The complete payment amount, including taxes and other associated charges
• The designated category or nature of the expense 

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.

How do you create and fill out an expense report?

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:

1. Determine what expenses you want to include in your report.
2. List the expenses that meet your criteria, including the details listed above.
3. Total the expenses included in your report.
4. Add notes about expenses incurred or total paid.
5. Give your report a date, number and title based on what it includes.

Why are expense reports important?

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: 

• Monitor departmental spending and overall cash flow
• Determine profit margins by offsetting expenses against total revenue
• Facilitate employee reimbursements for valid business expenditures
• Keep tabs on costs linked to specific projects, products or clients 

Expense report categories and associated expenses

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: 

The best accounting software for tracking expenses and creating expense reports

Among our picks for the best accounting software, we recommend the following platforms for expense management and reporting:

• Intuit QuickBooks: The gold standard in accounting software goes beyond tracking your expenses automatically. It also categorizes all your expense transactions automatically, saving you substantial work when it’s time to claim tax deductions. Explore this platform’s other features via our Intuit QuickBooks accounting software review.
• FreshBooks: With the FreshBooks mobile app, you can snap photos of physical receipts easily to document your expenses. FreshBooks also reconciles your spending records with your bank data automatically to ensure you’ve captured all your expense transactions. Learn more via our FreshBooks review.
• Xero: You can view your current and projected expenses from the Xero dashboard. The mobile app also powers immediate reimbursements for any expenses your team has filed. Check out our Xero review to learn what else this vendor offers.
• Zoho Books: This accounting software platform includes tools for automating your expense tracking. You can also view your top expenses as well as the projects for which you’ve incurred billable expenses, directly from the Zoho Books dashboard. Read our Zoho Books review to learn about this platform’s additional features.
• Wave Financial: Connect Wave to your financial institutions ― it offers 10,000 such connections ― and you’ll make it easy to download and import expense records. The Wave mobile app is also great for converting paper receipts to digital expense records. Our Wave Financial review details the extensive functionality of this entirely free accounting software.

Saving records of your spending

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.