What is an expense report?
An expense report is an itemized list of incurred expenses made on an organization’s behalf. In some instances, employees submit expense reports to receive reimbursement for expenses paid with personal funds.
Expense reports help accounting and finance teams understand what an employee purchased, how much money they spent, and how much their organization should reimburse them.
Businesses leverage expense management software to streamline and monitor employee-initiated expenses. These tools simplify and automate a business’s expense entry, speed up review time, eliminate the need for a paper trail, and reduce administrative effort.
Types of expenses
The details in an expense report vary depending on the industry and type of business. Organizations should specify the types of expenses they reimburse and other relevant information such as capped amounts in their policies. Below are some of the most common types of costs to consider:
- Travel. Employees may incur expenses when traveling for business activities. Costs in this category include airfare, air travel upgrades, hotels, transportation, mileage tracking, parking, and meals. Businesses should outline which travel-related costs they cover and specify amount limits in a corporate travel policy.
- Meals and entertainment. Some businesses provide budgets for meal and entertainment expenses. This category includes beverages and meals for business meetings, individual meals, and team entertainment.
- Workspace. Organizations may reimburse employees for workspace-related expenses, particularly for remote or hybrid workers. Some workspace expenses include computers, mobile devices, internet service, desks, and office chairs.
- Growth and development. Professional development is essential for employee growth, and some businesses pay for partial or full development costs. This might include tuition, professional membership fees, conference and tradeshow registrations, certification fees, online courses, and seminars.
What's included in an expense report?
Depending on the company, an expense report can comprise essential information only or more detailed information about the expenses. In general, no matter how simple or elaborate, an expense report typically includes:
- Employee details. A report will include information on the employee submitting the expenses, like employee name, department, manager, and other contact details.
- Expense details. Employees should report the purchase date and individual expense amounts supported by a receipt or proof of purchase. The merchant or vendor who provided the item or service is also included. Additional descriptions about each expense may be necessary.
- Relevant client or project information. An employee should include the relevant information if an expense is for a particular client or project. It can also be helpful to designate if an expense is billable to a client.
Why are expense reports important?
Expense reports are essential for various reasons. Some of these are detailed below.
- They help businesses understand how much they’re spending. Tracking expenses enables an accurate view of company spending. This is helpful for budgeting and forecasting, so businesses have an idea of how much revenue they need to bring in to cover all expenses.
- They’re useful for tax purposes. In many cases, business expenses are tax-deductible. Expense reports justify that an expense is business-related, which can be beneficial if auditors conduct an audit after the company files taxes.
- Businesses can quickly reimburse employees for out-of-pocket expenses. Expense reports are necessary to ensure employees receive reimbursements. Employees appreciate getting reimbursed for business expenses promptly, which can be complicated without proper reporting processes.
Expense reports best practices
To get the best results from expense reports, some general best practices should be kept in mind. Consider the following:
- Create clear expense policies. Ensure employees understand how the expense process works and what incurred costs they can get reimbursed for. Policies should align with a business’ needs and financial plan. Expense policies can also help the Internal Revenue Service (IRS) understand what expenses a company is reimbursing employees for, confirming they are reasonable business expenses.
- Don’t overcomplicate the process. Keep expense approvals and tracking methods as simple as possible. Adding too many steps to the process can cause confusion and frustration, leading to inaccurate reporting and unnecessary work.
- Ask for the correct information. Ensure the requested information on expense reports is accurate according to the finance and accounting teams’ needs. Remember different information is required for different expense types. Follow proper IRS and tax guidelines when in doubt.
- Train approving managers. Businesses often assign managers to approve team members’ expense reports. Training managers is crucial for accurate reporting. Hold approving managers accountable for maintaining company policies and verifying employees report expenses correctly.
