Small business employees regularly funds a range of business costs out of their own pockets. These expenses are unavoidable because they are required to keep the business operating.
Employees then request repayment since all the purchases are considered business costs. Employees record these demands as expenses as a result. This is where expense reports come into play. Expense reports are used to record and request a refund of all these additional expenses.
This article covers the most common details on the importance of expense reports for independent contractors, sole proprietors, freelancers, and other business owners.
Let us start with understanding what is expense report:
What is an Expense Report?
Employees of the company typically submit a variety of business expenses they have personally paid for on expense reports.
The amount of money spent across the entire business, a department, or on a project is displayed in expense reports. Employees may also utilize them to claim payment for costs associated with their employment.
Employees fill out an recent expense report to submit a request for reimbursement for any business expenses they have incurred on the company’s behalf. When expenses exceed a certain threshold, employees typically attach receipts with the expense report. Basically, expense report is a form of compensation request.
The company refunds the amount requested by the employees via expense reports if the charges are recognized as proper business costs.
What Does an Expense Report Look Like?
Like any other formal document, expense reports submitted require a predetermined format as per your company’s requirements.
However, it can be challenging to create an expense report from scratch. Fortunately, employees have a range of options at their disposal, including the ability to submit expense reports electronically, use a mobile app to take photos of receipts, and automate approvals and reimbursements.
You can alter the expense report for your company to suit your unique needs.
However, it must at the very least include these components:
1. Company Details
The department where the spending happened, the employee’s name, the manager’s name, and the employee ID number are also listed.
2. Dates and Timeline
The employee’s name, manager, employee ID number (if applicable), and other details are also provided, along with the department where the expenditure occurred.
3. Supplier’s Name
Which vendor the employee used to purchase the good or service should be specified.
4. Details of Expenditure
The expense report must include both a description and the nature of the expense, regardless of whether it is an employee reimbursement or a regular insurance payment. Add as much detail as possible to receive accurate reimbursements.
5. Cost Investment
The total cost of each expense will be shown at the bottom in its column.
6. Description
The employee should briefly describe the items they bought and the intended use of the expense for the company if it is not immediately obvious.
7. Cost Division or Classification
The expense report may demand that a specific account be used to charge the payment or specify the expense category depending on how the business is run. Because they might not have separate departments, smaller businesses might organize by category.
8. Subtotals and Summaries
It is easier for your bookkeeper to issue the reimbursement and all the expenses to your company’s accounting software if you include subtotals for many different expense amount categories of business expenses in addition to the amount requested.
9. Payment Information
Employees need to explain where the business expenses were made and how. All the details were made clear in this section.
This template from Moon Invoice has all the details needed for a perfect expense report. It calculates the costs associated with renting a property based on categories of tax deductions. Moon Invoice makes it easy to keep track of project spending, bill clients for business expenses, and file your taxes.
Create Your Business Expense Report Easily
With Moon Invoice record expenses on the go and streamline your expense management process.
How to Make an Expense Report?
Making an expense report will enable you to easily itemize each expense, which will make it simpler for your accountant to include them in your taxes.
Follow these easy steps to create an expense report:
1. Choose a Template or Expense Reporting Software
If you’re creating cost reports, you have two choices:
- Get the free Microsoft Excel expense report template. The Microsoft Excel expenditure report template includes a particular expense category.
- Utilize cost management software to generate expense reports. It is simple to join your bank account, download transactions, classify and add expenses, and save time with the expenditure tracking expenses tool.
2. Adding or Removing Columns
The Microsoft Excel expense report template includes typical expense categories. Depending on the costs your company organization experiences, you can modify these. Because you can deduct a specific area of business expenses incurred, this expedites the tax filing process.
3. The Expense Line Item should be Listed Separately
Provide all information in detail, and give each expense its line. For instance, to properly track spending, add information about the client for whom a particular expense was incurred.
4. Calculate the Grand Total
As previously mentioned, there is a subtotal for each spending category as well as an overall total. Tracking many business expenses is made simple by including subtotals and grand totals in your expenditure report.
5. Include any Required Receipts
An employee submitting an expense report are requesting reimbursement for the expenses incurred. Therefore, to demonstrate the charges they have incurred, it is important to include the receipts for the relevant expenses incurred.
6. Print or Send the Report
Verify the totals and subtotals one more before printing and sending the expense report. Using cost tracking software, you can email expense reports that have been exported in Excel and PDF formats.
How to Fill Out an Expense Report?
Here is a brief description of how to fill an expense report in steps:
1. Choose an Expense Report Template
Choose a report template based on the timeframe of the specific expenses you intend to report. The date, employer name, employee title, and any other details that the top portion of the report may require should all be entered according to the directions on your template.
2. Add your Itemized Expenses
List all the pertinent expenses that fall inside the scope of your expenditure report in the itemized section. In addition to travel costs, traveling employees may also include accommodation and meals on their cost reports.
3. Add Up the Total
Once you’ve listed all of the costs your business has experienced, add up all of the costs to get a total.
You could find this data helpful as a roadmap you construct for your business. By tracking your spending and reporting them, you can assess how your budget is working.
4. Submit Receipts for Verification
Lastly, attach any pertinent receipts to the report. The receipts must prominently reflect the date and grand total amount. Send the report to the department manager, who will check it for inaccuracies or violations of corporate guidelines.
For small businesses, using a standard expense report form has several benefits. Nevertheless, depending on the size or industry of your business, adopting accounting software like Moon Invoice to keep track of expenses included might make sense.
Common Expense Report Categories
One of the key benefits of expense reporting is the ability to classify spending. You can better organize your spending tracking by using multiple expense categories. As a result, accounting errors are less likely and firm accounting efficiency is increased.
When you file your business taxes, it will be very helpful to distinguish between what the IRS considers tax-deductible and non-deductible different expense categories as well as to break down the various categories.
Common tax deductible expense categories include:
- Business Vehicle(s)
- Meals & Entertainment Expenses
- Office Supplies
- Rent, Utilities & Phone
- Travel Related Expenses
- Business travel
- Training and Education
- Depreciation
Expense Reporting Process
Here are the steps of an expense reporting process:
- The line manager or department head can capture receipts and checks the expense report after it has been submitted by the individual or department to ensure its accuracy and legality.
- They can either accept the report and forward it to the accounting team for reimbursement based on this validation, or they can reject it if there is a policy breach.
- The accounting department classifies the repayment of the loan as a business expense, which lowers the company’s taxable profit and accounting earnings.
Why Do We Need Expense Reports?
Demanding expense records could seem like useless red tape to a small business. However, implementing a structured expense reporting system has several benefits for your company and its employees.
1. Calculates Tax Deductibles
Tax deductions are allowed for business costs incurred by employees. However, those tax deductions must be properly documented following IRS standards. Even if they aren’t listed on your bank account bills, you may make sure that all tax-deductible expenses are documented by using an expense report.
2. Simplified Processes for Submitting Expenditures
Reimbursing individual expenses throughout the month may take a long time for your accounting team. A monthly expense report makes it easier.
3. Differentiate Expense Reimbursements from Income
Plans for expenditure reimbursement may or may not be responsible. When an employee is not compelled to keep track of their spending means that the allowance is viewed by the employer as taxable income.
Switching to Expense Reporting Software
Making expenditure reports in Microsoft Excel is easy for small businesses. When your company expands and more expenses are made, you will need to switch to expense-tracking software.
It is due to the ease with which you may download transactions, categorize spending, add expenses, link your bank account to the expense monitoring program, and save time. Using the third-party app connections provided by total cost monitoring software that automates the creation of an expenditure report, you can also incorporate receipt photographs.
With the aid of expense report templates, you may efficiently and swiftly keep track of your spending. You should switch to a cost-monitoring application like Moon Invoice when your company grows and the amount of all the expenses increases to free up your time.
Moon Invoice provides several choices for keeping track of expenses while traveling.
This replaces the need for manual data entry and paperwork by:
- Automatically generating and uploading reports
- Increasing spend visibility by employing logical dashboards and analytical reports.
Conclusion
Expense reports reduce the mystery around your company’s spending.
If done correctly, you might simplify your taxes, anticipate your financial situation for the following year, and pay employees fairly.
When your business expands and the volume of expenses rises, you should switch to cost-tracking software to free up your time. All of these features allow you to keep employees happy and productive while saving a tonne of time and money. Moon Invoice simplifies your financial management process.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
