An expense report is a document that lists the costs related to running a business. To get paid for work-related expenses like petrol or food, a small firm may ask its staff to submit expense reports. A small business owner can also utilise expense reports to keep track of project spending and prepare for tax season. The beginning and development of a small business can be exhilarating. However, dealing with all the additional problems and procedures that need to take place to manage a firm is one of the most severe difficulties that small business owners frequently encounter.

Did You Know: Businesses and sole proprietors use expense reports for tax purposes to keep track of expenses they can write off on their tax returns.   

What is Expense?

An expense calls for transferring funds from one person or organization to another as payment for a good, service, or cost. Rent is a cost to a tenant. Tuition is a cost to parents or students. The expense may be prepaid or outstanding. Prepaid and outstanding are shown in the expense report when these expenses are incurred. 

Listing expenses of the following kinds in an expense report is a general practice:

• Advertising
• Vehicle and truck costs
• Fees and commissions
• Programs for contract work-related benefits
• Insurance
• Interest \Mortgage
• professional and legal services
• Office costs
• Pension and profit-sharing arrangements
• Lease or rent
• Licenses and taxes
• Selling expenses (Cost incurred to secure an order is called selling expense)
• Meals and travel
• Utilities or Wages

Also Read: Accrued Expenses Meaning Explained With Examples of Accrued Expenses & Importance

What is an Expense Report?

An expense report is a document used to keep track of business expenses. According to Entrepreneur, an expense report form contains any purchases required to operate a business, such as parking, food, gas, or motels. You can create an expense report using accounting software or a template in Word, Excel, PDF, or another well-known tool.

How an Expense Report Appears?

The following data is standard in an expense report:

• Date, i.e. when the item was bought.
• Details of the Vendor or store from which the item was bought.
• Account numbers can be used in place of the client or project fields to identify the client for whom the item was purchased and the project for which it was purchased.
• Who made the purchase?
• Further clarification notes
• The expense's complete cost, including taxes.

Uses of Expense Reporting

Employees of small firms who frequently pay business expenditures out of pocket are required to submit expense reports. Additionally, they must include receipts with the spending report. After checking the expense report for correctness, the owner can pay the employee the full amount.

Small business owners can also use expense reports to examine their overall spending for a specific reporting period, typically a month, quarter, or year. 

Also Read: Operating Expenses - Understand the Meaning of Operating Expenses (OPEX)

Types of Expense Reports

According to Accounting Tools, the owner can assess the outcomes and determine whether overall expenses were higher or lower than anticipated. 

1. One Time Expense Report

A straightforward one-time expenditure report may be sufficient if your employees don't incur many recurring company expenses, and you only need a form to record the occasional travel or project expense. This form is ridiculously easy. It only requests a one-line explanation of each business expense, the employee's personal information, and the pertinent pay period for which the report is being completed. 

2. Monthly Expense Report

Typically, expense reports are produced monthly, quarterly, or annually. A monthly expense report lists all the necessary expenditures a business makes each month to operate.

An employee may also submit a monthly cost sheet that lists every purchase made for work purposes during the previous month. The required receipt or receipts must be enclosed. A monthly expense report can be used to see where costs might be reduced or eliminated to increase profit during hard times.

3. Recurring Expense Report

Giving every single item its line on the report could take up too much space if your employees frequently incur several business expenses throughout their employment (such as travel and work, regular driving, etc.). The following template, which consolidates your daily spending on a single line, might be more beneficial for you.

The "Hotel", "Fuel", "Transport",  "Meals", "Phone", "Entertainment", and "Miscellaneous" charges are included in this template. Your employees may require their column in the form if they spend a lot of money on supplies or flying travel.

4. Annual Expense Report

Businesses employ annual cost reports to receive a quick overview of long-term spending for a certain person, project, department, or product line. The only change between this template and the one above is that each month has its row. To complete this form, you'll need to calculate monthly totals for each category of spending.

Expense Report Format or Template

For the many expenditure report types your business uses, such as an office expense sheet, you use expense report templates (Eg., For office expense sheet, you use office expense format). Create a Salesperson template, for instance, to use when entering expenditure reports for your salespeople. Define the types of expenses that can be reimbursed on that template, such as meals, travel, and lodging. Expense Report Templates help to keep track of expenses simply. However, as your business expands and your expenses increase, you will eventually want to switch to time-saving expense monitoring software.

• For Excel, Microsoft Office offers a free expense report template that may be downloaded.
• You may keep track of your mileage and get reimbursement with this Excel mileage record.
• This straightforward printable expenditure report form keeps tabs on and totals your travel costs.
• A straightforward expense report sample in Word and PDF.

Also Read: What Is Capital Expenditure - Guide on How Do You Calculate Capital Expenditures

Importance Of Expense Reports for Small Businesses

• Using expense reports by managers gives them the ability to monitor corporate spending and the spending of a single team, department, or customer.
• By filing expense reports, employees can receive reimbursement for business-related out-of-pocket costs they incur, like travel and entertainment costs. These reports also assist management.
• Monitoring departmental, corporate, and overall cash flow expenditures
• determining profits by subtracting costs from gross sales
• Employee reimbursement for allowable business expenditures
• Tracking costs associated with a product line, a particular project, or a client

Conclusion

Expense report comprise a categorised and itemised list of expenses which were made on behalf of the organisation. It helps the employer or finance department to determine what money was spent, purchased and how much expenditure is approved for reimbursement. Expense paid in advance is called Prepaid Expense, and those due but not paid are called Outstanding.
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