One uses an Expense Report form to record business expenses. The employees report various business expenses incurred by them out of their pockets. It includes any purchases that are necessary to run a business, such as parking, meals, gas, hotels, etc.
So basically, an expense report is a form through which the employees request reimbursement along with attached receipts for the expenses incurred.
Furthermore, the business entity examines the reports submitted and may reimburse the amounts.
A new small business may not have many expenses to track. But as you grow, your expenses will multiply. You’ll need to track how much you’re spending via an expense report form.
What should an expense report include?
An expense report should include all of the following information:
- Department, position, contact info, SSN, etc of the identifying person submitting the report.
- Date and amount for each expense,
- A brief description of each expense
- Which account in your company’s the expense be billed to
- Vendor: place of purchase
- Client: what client was the item purchased for
- Subtotals for each expense type,
- The employee submitting the report requesting the total reimbursement figure.
Why Do We Need Expense Reports? (And) Why They’re Important for Small Businesses?
The reasons why Expense Reports are needed include:
1. Tracking Expenses Over a Reporting Period
Expense Reports help you to realize how much you are spending. Thus, you can see if any particular expense category is leading to increasing your costs.
2. Reimbursing Employees
As mentioned, the employees incur expenses out of their pocket and ask for a reimbursement.
Thus, you need a proper system in place to ensure that the claims being demanded are authorized business expenses. They count the expenses which gives you an understanding of when, where, and how these expenses were incurred.
3. To file Tax Effectively
Many expenses incurred by your employees while at work are tax-deductible. However, till the time you have proof of the expenses, you cannot claim tax deductions.
With the help of expense reports, you can keep track of these tax deductibles. Your expense report must use the IRS’s expense categories to fast-track your taxes.
Thus, as a sole proprietor while preparing expense reports, make sure that you use the expense categories as specified in Schedule C.
The following are some expense categories that form part of Schedule C.
- Advertising
- Car and truck expenses
- Commissions and fees
- Contract labor
- Employee benefit programs
- Insurance
- Interest
- Mortgage
- Legal and professional services
- Office expenses
- Pensions and profit-sharing plans
- Rent or lease
- Repairs and maintenance
- Taxes and licenses
- Travel and meals
- Utilities
- Wages
How to create an expense report?
Most businesses use accounting software to create an expense report, while others use word processing or spreadsheet programs. Here is an outline of the process in general:
1. Label the report.
List the name and contact information of the company at the top of the report.
2. Establish the appropriate columns.
Here are some typical purchasing details you may wish to include:
- The date of purchase
- Where it was purchased
- The client, account number, or project with which the purchase was associated
- Who made the purchase, which may be different from the person preparing the expense report?
- A notes field for explanatory details that don’t fit into another category
- The amount of each expenditure, including any taxes and gratuities paid
3. Enter the transactions.
After the expense categories and column headings are set, enter the individual transactions into the document.
4. Calculate subtotals and totals.
Calculate a subtotal for each expense category shown on the form, and then add all of those to get a total for the report.
5. Attach the receipts.
Attach the receipts for each expense as documentation
6. Collect any necessary signatures.
Most companies require a signature from the person presenting the form as well as the signature of the authority to approve the expense
Once all required signatures are obtained on paper or electronically, the expense report is ready to submit.
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