What is an expense report?: A Closer Look at Why They Matter and How to Use Them
When running a business, no matter if it’s small or large, having visibility of your finances is undisputed. It needs to happen, pronto.
Right now, you’re probably making notes of expenses on a spreadsheet all whilst binding them together using a bulldog clip and storing them in the top drawer of your desk.
Or some form or journal and when the time comes for your tax returns, the documents of expenses are then passed over to your accountant and they deal with it from there.
Visualisation of your company expenses and finances seems to be a bit of a blur.
If this is you right now, you’re going to be glad you stopped on this article.
In this guide you’ll learn to successfully keep track of expenses and provide better, faster and more efficient expense reports.
Key takeaways of expense reporting
- An expense report is a document that itemises and categorises company expenses.
- There are two ways to track expenses. First, is a manual process using spreadsheet templates. Second is adopting to an automated process using tools like ExpenseOnDemand
- The benefits of using an expense report can help get better financial control, compliance, careful budgeting, a simpler way to manage reimbursements and finally a better insight to analytics of company spend.
What is an expense report?
An expense report is a document that has a list of expenses that are made on behalf of an employee on behalf of a company. It should be a part of your overall company expense management process.
Depending on the organisational structure, employees are used to using personal credit cards for business expenses.
Expense reports track business spending habits and give finance managers and supervisors high-line numbers and categories that are spending the most money within the business.
Once business expenses are made, this can:
- Be digitally captured using a system like ExpenseOnDemand
- Written down on a spreadsheet or a Word document.
Let’s dive right into the contents of an expense report.
What should you include in an expense report?
Before we get started by looking at the elements that compose a good expense report, if you’re just starting out or want to see an example of an expense report, you can download expense report templates here.
It is important to note down employee information when creating expense reports so you can identify the person who made the expense.
We’ll cover some of the information which we feel is mandatory to have on an expense report.
When defining an expense report, it’s important to note the details that are required in order to generate an accurate report.
To give you an idea of these details, consider the following:
- Employee name
- The department in which the team member is a part of
- An ID number of the team member.
- Name of items being expensed
- Date of purchase
- Description of the item
- To keep your budget and expenses organised, define your expense categories, such as travel, client entertainment, and more.
- Amount spent
Receipts and Supporting Documents
When an employee makes an expense claim, they must fill out a claim form, also called an expense report form.
This is where employees provide details about the information behind its purchase.
If you’re new to expense management or are just starting out, you can collect expense information by setting up Google Forms for your team.
Though this is not the most reliable way to manage expenses because:
- It leads to manual expense management
- Expense claims are open to errors
- Employees will pocket receipts in the hopes to submit them later, but chances are, they’re list
- From a management perspective, it’ll be a big headache for you to reconcile on a monthly basis.
With ExpenseOnDemand, a lot of the heavy lifting is handled by the tool for you, saving you time and money. Expense reports have never been easier.
Reason of Expense
To make the purchase clearer in the future, add a 'Brief Description' column to your expense report. An expense report should provide the business with a direction and an overview of the purchase.
An Example of a business description for a computer purchase:
Apple Macbook Pro with M1 processing, 128GB RAM and 512 SSD for Antonio in graphics.
A bad example could be: Computers.
To keep the expense management process clean and smooth sailing, expenses do need to be signed off.
Whether this is a one-click approval or a physical signature, this helps maintain accountability.
Generally, when expenses are signed off by a supervisor, or manager, it's a mark of approval for the company to pay the employee back for their expense claim.
Other Policies or Requirements
Expense policies are a good way to guide employees towards what they can and cannot claim from a business. You should make it a point to have a policy in order to maintain clarity between each member of your team. You can check out our complete guide to expense policies.
Expense Report Templates
You can quickly and easily get started with manual expenses by using our predefined templates whether you use Google Sheets or Microsoft Excel.
Expense reporting process
An employee has made a purchase on behalf of the company, but what does the reporting process look like?
- The employee over the month keeps tabs of the business expenses. Towards the end of the month before payroll, HR or finance encourage employees to submit their monthly expense report so that they can be reimbursed simultaneously.
- The line manager will review the expense report that has been submitted by the employee. The review will consist of checking that there are no irregular claims being made and that the claims are legitimate and in line with the company expense policy.
- If the managers are happy with the claim, then the employees expenses will be reimbursed in a timely manner and the supporting documentation to a claim (receipts/invoices) are then stored securely for audit purposes.
If you’re considering using ExpenseOnDemand, you’ll be delighted to know that expense processing is automated.
This means that a lot of the manual checks are all done automatically.
Have you ever said to yourself: “I wish I could just allocate some money to x. This way, I don’t have to get involved with every single little purchase”?
Well, we have a solution to this problem, it’s called pre-approvals. Pre-approvals are expenses that get approved automatically within a certain amount.
Say an employee goes to New York City for a conference on behalf of the company. You need to cover travel, food and accommodation.
A pre-approved amount such as £2000 can be set for them to spend on this trip.
This helps save time from employees manually requesting for approval on specific claims.
It’s a nifty tool, see it in action here.
Why do you need expense reports?
Keeping a detailed expense report is a great way to visualise your business expenses. Without expense reports, the financial picture of your company becomes blurry.
I’m going to illustrate 5 key benefits to why you need expense reports in your business.
Better Financial Control
An expense report provides a clear and concise overview of company expenditures, allowing finance managers and company executives to see how much and where the company's money is being spent.
To eliminate excess spending, review employee expense reports. Using this heuristic approach, managers can identify areas where spending is high, and if these costs can be reduced, they can save money meaningfully.
Having an expense report makes this a powerful tool for financial managers.
Compliance With Government Regulations
Businesses must accurately record and report their expenses to the appropriate authorities to avoid fines and penalties. By reporting expenses, companies can avoid fines, penalties, and legal problems.
Among other things, organisations are required to report expenses, which include travel expenses for employees, entertainment expenses, and other business expenses.
By tracking expenses, companies can identify overspending areas and make changes to their budgets as needed.
It provides businesses with insight into future expenses and investments, allowing them to make smarter financial decisions that will increase their bottom line in the long run.
The reporting process, for example, can enable companies to identify areas where they are overspending and can be reduced or eliminated to increase profits.
Simplified Way for Expense Reimbursements
Having a reporting system in place can help companies ensure employee reimbursements are accurate and on time.
Streamlining reimbursement procedures and reducing errors are two benefits of an efficient expense report.
Employees can submit expense reports quickly and easily with the help of an automated system, eliminating the need for finance teams to manually enter data.
Data can be gathered from expense reporting analysis.
These reports can also be used to identify areas for improvement and identify fraudulent or unauthorised expenses.
Expense reporting analysis can improve efficiency and reduce costs.
The company's budget can be dominated by travel and entertainment, which might suggest finding less expensive ways of meeting vendors.
Easy Way To Manage Tax Deductions
Your employees are likely to incur business expenses while at work, but they must correctly document and prove them.
The bank statement or corporate credit card statement is often used by businesses to list all their deductible expenses. On the other hand, expense reports make it easier to keep track of deductible expenses and write them off during tax season.
Accounting departments total and enter tax-deductible expenses.
Travel expense reports include airline tickets, hotel rooms, and meals, as well as other costs.
From receipt to reimbursement: The reporting process
We will cover two ways of tracking expenses: manually (using a spreadsheet) and automatically (using ExpenseOnDemand).
Expense report template: Create expense reports using a manual spreadsheet
We've answered "what is an expense report" now let's take a look at some different ways you can create them.
Manual reports are not recommended for any business, but if you’re just starting out, it might be a good short-term alternative. Lets get started and create an expense report the manual way.
- You can use Google Sheets or Microsoft Excel for this example. Go to sheets.google.com to get started.
- Click on the expense report template.
- Then you can modify the template based on your company's needs. Refer back to the "What should an expense report include?" section for details.
- By modifying some of the fields provided (like company name, address, date range, and manager name), you can modify the template to fit your company needs.
- Once you're finished modifying your template, you can either share it with your employees as an editable version or have them print it out and fill in expenses incurred before the expense reports are submitted.
- Make sure you request the receipts/invoices associated with each entry.
Automate expense reporting
Business spending is submitted using a tool that is accessible to all employees within your organisation for automated expense reporting.
You can sync your expense data with your accounting data when using a reporting tool that integrates with popular accounting software such as Xero, QuickBooks, and Sage.
Our guides will help you connect ExpenseOnDemand to your accounting software if you are considering it as your expense reporting software.
Business expense categories
For small businesses, understanding which business categories are tax deductible and which are not can be beneficial from a tax perspective.
You should consult your accountant for local tax laws and exemptions when doing your taxes. The following is a general list of categories for you to keep in mind when categorising expenses incurred.
- Advertising and promotion expenses
- Business travel expenses, including transportation, lodging, and meals
- Car and truck expenses, including mileage, fuel, and repairs
- Depreciation expenses for assets used in your business, such as equipment or property
- Employee wages, salaries, and benefits, including health insurance and retirement plans
- Home office expenses, including a portion of rent or mortgage, utilities, and repairs
- Insurance expenses, including liability, property, and workers' compensation insurance
- Interest on business loans and credit cards
- Legal and professional fees, such as fees paid to attorneys, accountants, and consultants
- Office supplies and equipment expenses, such as computers, software, and office furniture
- Rent or lease payments for office space, equipment, or vehicles
- Taxes and licences, including state and local sales taxes, payroll taxes, and business licences
- Telephone and internet expenses for business use
- Travel and entertainment expenses for business-related events and meetings
- Utilities expenses for your business location, including electricity, gas, and water.
How to choose and find the right expense reporting software
The process of collecting and organising receipts and invoices is a constant challenge for all types of companies.
Several cloud-based solutions have made it easier to manage employee business expenses and to create expense reports in recent years.
ExpenseOnDemand, for example, starts from just £1 per month/per user, making it one of the most affordable expense tracking solutions on the market.
Features of an expense tracking system
Businesses grow at different rates, so you don't always need all the features a tool can offer. At ExpenseOnDemand, we recognise that businesses grow at different rates.
For this reason, we went modular. Our tool allows you to turn expense tracking features on and off as and when you need.
To name a few features:
- Audit trails
- Fraud detection
- Cost centres
- Mileage tracking
- Approver levels
And much more. You can see our full list of features here.
Expense Report FAQs
What is considered an expense?
An expense is a purchase made on the behalf of a company. Expenses can vary from staff meal costs, travel expenses, meetings and more.
What makes a good expense report?
Expense reports should be accurate and well-organised, and provide an overview of what transpired during the specified period.
There are several elements that make up a sophisticated expense report, including basic information about the expenditure, as well as receipts and invoices.
In addition to helping individuals and businesses manage their finances efficiently, an expense report serves as a useful tool for budgeting, decision-making, and financial planning.
How long do expense reports take?
The time it takes to fill out an expense report varies. Typically a manual process can take several hours or even days to complete. Companies that adopt manual processes face the strain of chasing receipts and dealing with a lot more admin.
Whereas, automated expense reporting can transform this from days and hours to minutes.
More on expense reports
- Expense reporting and employee retention
- Importance of better expense reporting
- How to fill in an expense report