Employers record the reimbursed amount as a business expense for accounting purposes and tax-related events.
How Do Expense Reports Work?
The employee expense reports can be divided into categories, e.g., office supplies, gas money for accurate mileage, meals, and other types of company-reimbursable expenses. Finance departments itemize the expense reports to display multiple expense entries and costs.
Tracking all this data allows employers to audit each report efficiently before they can approve and validate the expense instead of just paying back employees that say they need to be reimbursed. The validation process is done to determine the legitimacy of the report and accounts for tax deductions.
Expense reports can be created in two ways - as a paper expense report or a digital expense report.
What Should an Expense Report Include?
Different companies can use their own templates for expense reports, along with custom expense entries tailored to their needs, but the most basic expense report should entail the following information:
- Information about the employee submitting an expense report, such as name, department, position, contact details, etc.
- The date of the expense, the type of expense (e.g., office materials), and the amount of money, which should correlate with the date and amount stated on the issued receipt.
- The name of the store, merchant, and vendor where the purchase was made.
- The project or client for which that item was purchased.
- The company account from which the employee will be reimbursed.
- Description regarding the expenses (optional).
- The subtotal of each expense type and the total cost of the expenses with pre-tax calculations.
- In the case of an expense advance, a note detailing the sum of the advance, substracted from the total reimbursable expense.
Why Are Expense Reports Used?
Cost Control and Expense Tracking
Cost control helps managers track the funds the company allocates to business expenses and get insights into, how much of the funds is spent and on what, over a period of time. Moreover, cost control enables companies to determine how much employees spend in different categories such as office supplies, project-related expenses, etc, and which categories are the cheapest and which are the most expensive.
Employers later analyze the cost control reports and spot loopholes in their expense policies that can lead to larger expenditures. This helps them determine which vendors need to be prioritized and which need to be removed from the company expense roster.
Sticking to a budget is key to running a smooth and healthy business. Managers and employers use accurate and detailed expense reports to create strong and stable financial plans for future expense endeavors.
Moreover, when there’s a new project-related financial plan, managers can allocate budget expenses to different projects or departments using previous expense report data.
Employees who pay for business expenses from their own pocket use expense reports as a guarantee they’ll be reimbursed by their employers.
They serve as evidence regarding when, where, and how they made business expenses and whether they comply with the company expense policies.
On the managers’ end, they are a good way to estimate what can and what can’t be reimbursed.
Managers are aware that many business expenses are tax-deductible but cannot claim the tax deduction unless they record and categorize them. As a result of this, employees need to save all expense receipts as proof of purchase.
Its the responsibility of the finance or HR department to add up the expenses that can be written as tax deductibles and submit them for tax returns during tax season.