What Is an Expense Report? (Why It is Important for Small Businesses)

An expense report contains all the necessary expenses that should be mentioned to ask for a reimbursement. An expense report is usually made by employees that are submitted to the employer in small businesses. Also, the report helps the employer to keep a check on the expenses being made and to be ready for tax time.

In this article we will cover:

What is an Expense Report?

The expense report includes all the purchases made to operate the business such as traveling, meals, hotels, etc. All these expenses in the report help in keeping track.

Different Softwares can be used to account for expenses like excel, MS word, pdf, etc.

What an Expense Report include:

An expense report includes the following:

  • The date on which the expense incurred.
  • Where the item was purchased.
  • The nature of the expense.
  • Who made the purchase.
  • What account to be used for purchase.
  • Any extra notes added to clarify the expense.
  • The total amount of expense including tax.
expense report

The example above is taken from bench.co. The above report shows in what order the report is made.

Business expense categories:

Small businesses require expense reports to file taxes and get a tax return or exemption for some expenses. Expenses that could be written off include airfares, rent, insurance, loans, etc.

Making business expense report to mention all tax-deductible expenses in tax forms. Expenses are included in the form of total under each heading, according to IRS. For example, a sole proprietorship business has an advertising expense of $2000 then it will write $2000 expense in the advertising line of tax form.

According to IRS, the small businesses use ‘Schedule C’ that has listed the categories as follows:

  • Advertising
  • Car and truck expenses
  • Contract labor
  • Insurance
  • Commission and fees
  • Employee benefit program
  • Interest
  • Mortgage
  • Office expenses
  • Legal and professional services
  • Pensions and profit-sharing plans
  • Travels and meals
  • Rent or lease
  • Repairs and maintenance
  • Taxes and licenses
  • Wages
  • Utilities

How To Get Paperless Expense Reports?

Business entities are increasingly going paperless. This is due to the benefits like:

  • reduced expenses on office supplies
  • no added cost of processing physical reports
  • no updating data in the spreadsheet
  • saving employees the hassle of submitting physical copies of the Expense Reports
  • no missing receipts, etc

These business entities use automated expense report software to generate paperless expense reports. All the employees need to do is simply login to their account and fill in the expense report. Furthermore, they can capture images of the expense receipts and upload them, thus getting rid of the worry of losing paper receipts.

In addition to this, business entities can link their bank accounts to the expense tracking software, categorize expenses, generate and send paperless expense reports within no time.

What is a Monthly Expense Report?

An expense report can be made on a monthly, quarterly, and yearly basis. It depends upon the business for which purpose it is making an expense report. A monthly expense report tells how a business is performing and how much expense it is bearing.

A yearly expense report is used for filing tax forms, so all expenses are in one place as a record to fill in the form. A monthly report helps the business to know its financial health and how much of the budget is being used. The monthly report shows how much cost should be reduced or improved in order to make business work efficiently.

The employees could make a monthly report for the expenses they have paid from their own pocket and ask for reimbursement from the employer by giving him the report and proof with receipts for accuracy purposes.

What is considered an Expense?

An expense is a cost paid by the business in order to run the business operations. Expenses include payment of rent, insurance, wages, etc. It can also include the decrease in the value of assets known as depreciation e.g., the machinery being used for business the depreciable value of the machinery is taken as an expense.

We say that all expenses are costs but not all costs are expenses such as new equipment purchased is cost but not expense as it was bought to generate more income.

Expense Report Templates:

Expense report templates are a quick solution to tracking expenses. That said, you will eventually want to upgrade to expense-tracking software that saves time, especially as your number of expenses grows with your business.

Why do we need expense reports?

If you run a small business that already does bookkeeping and produces financial statements, it might not be clear why you need expense reports. So why do it?

They let you reimburse employees properly:

If an employee pays for something out of pocket and asks for reimbursement, you need some way of making sure the expenses they’re claiming are accurate. An itemized expense report (with receipts attached) lets you do exactly that.

They let you track expenses over time:

Expense reports also let you track spending over time and see whether any particular expense category is driving costs.

They let you do your taxes properly:

Many of the expenses your employees make when working for your business are deductible, but you can’t deduct those expenses until you record them somewhere and have proof that they happened.

Generating an expense report helps you keep track of deductible expenses that your business bank account/credit card history might not be catching, and make it a lot easier to write those expenses off around tax time.

This is also why it helps to use the IRS’s categories when designing your expense reports.

For example, if you run a sole proprietorship and you use Schedule C (Form 1040) to record your business expenses, make sure to use the expense categories from Schedule C (which you can find in Part II of the form) on your expense reports.

When recording expenses or designing your own reports, make sure to use IRS terminology like:

  • Advertising
  • Car and truck expenses
  • Commissions and fees
  • Contract labor
  • Legal and professional services
  • Office expense
  • Rent or lease
  • Vehicles, machinery, and equipment
  • Repairs and maintenance
  • Travel and meals
  • Deductible meals
  • Utilities

Discover a Better Way to Manage Expense Reporting and Finance Operations

Expense reporting is a fundamental part of your business and achieving your financial goals.

A business entity must undertake expense reporting effectively. This is because it enables the firm to track its expenses, reimburse its employees properly, and get an understanding of the actual versus the budgeted spending.

Accordingly, the business entities need expense tracking software that allows them to do just that. QuickBooks Online Accounting Software helps you as a business entity to track your income and expenses on the go.

Connect your Accounts

It enables you to connect your bank accounts, credit cards, Paypal, etc to automatically import transactions.

Sort Expenses

With Quickbooks Online, you can even automatically expenses into the tax categories. This allows you to claim tax deductions that your business deserves.

Organize Expense Receipts

Quickbooks Online also helps you to capture images of the receipts and save them which get automatically matched with your expenses. Thus, organizing receipts in one place enables you to never miss a tax deduction.

Create and Send Expense Reports

You can even create expense reports within no time and keep a track of your finances. These expense reports provide you with useful information to undertake key decisions and understand the profits or losses that your business is making.

You can even share these reports with your accountants to get a better understanding of the financial standing of your business.

If you are looking for more helpful resources and guidance, then check out our resource hub.

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