What is an expense report?

Keeping track of your expenses is an indispensable part of any small business. An expense report can help you track spending on a particular project, and your employees may submit expense reports to seek reimbursement for business-related expenses.

It’s not hard to create and use an expense report in your business, but there are a few things you should know. We’ll help you understand the basics of an expense report and how you can use these documents in your business.

What is an expense report?

An expense report is a document used to track business or project spending. These reports should include any expense necessary for running your business or completing a particular project. You can even submit these reports to a virtual bookkeeping service to provide an accurate account of your business’s income and expenses.

What is an expense report used for?

There are four general uses for an expense report. One of the more common reasons to use an expense report is to reimburse employees who have to bear certain business expenses out of their own pockets. These expenses might include travel costs, accommodation, meals, or any other payment made using the employee’s own money or credit.

Business owners can also use expense reports to monitor spending made on a per-project basis. In other words, expense reports can be used to keep track of the money invested in a particular project, indicating how much profit a company might expect from the finished result.

Expense reports can also be part of your invoicing process. When billing a client for a product or service, you might also bill them for materials used or other expenses that became necessary for the project to be completed.

As long as your client has agreed to cover these expenses (or a portion thereof) ahead of time, expense reports can be used to increase the accuracy of your invoicing process.

Finally, expense reports provide a clear record of business expenses, which can help you get organised at tax time. Depending on the expense, you may be able to claim it as a deduction on your tax return, though you’ll need records (for example, receipts) to substantiate each expense. Under tax law, those records must be in writing (on paper or electronically), in English or readily convertible to English, and generally kept for five years. To claim a GST credit you also need a tax invoice for purchases over $82.50 (including GST).

Business expense categories

Technically, your internal expense reports can include any categories you deem relevant to your business. However, many business owners find it easier to mirror the categories the tax law uses.

The Australian Government’s business.gov.au lists the following business expenses you may be able to claim as deductions:

• Motor vehicle expenses
• Home-based business expenses
• Business travel expenses
• Workers’ salaries, wages, and super contributions
• Repairs, maintenance, and replacement expenses
• Other operating expenses
• Depreciating assets and other capital expenses
• Carbon sink forest expenses

It’s also possible that your business might have unique business expenses or expenses unique to your industry. These should also be included on your expense reports, though you’d need to check with a registered tax agent whether you can claim a deduction for them in the same way as those above. An expense is generally deductible only if it relates to earning your business income, and only the business portion of a mixed business and private expense can be claimed.

What should be on an expense report?

Your expense reports should be clear and well-organised while keeping as much detail as possible. They should also be simple enough that your employees can easily fill them in with minimum training.

Every expense report should include information about:

• Identity: Who purchased the item?
• Department: Which department made this purchase?
• Description: What was the nature of the item or service?
• Vendor: Where was the item purchased?
• Client: Was the expense related to a particular customer?
• Project: Was the expense associated with a specific project?
• Amount: What was the total amount of the payment?
• Date: When did the charge occur?

Your expense reports should also leave room to add any clarifying details surrounding the purchase. The expense report should be accompanied by supporting documentation such as receipts or invoices, so it’s good to remind employees to hang onto these documents so they can properly submit them.

Are there different types of expense reports?

Most companies prefer to use several different expense reports, generally organised according to the timeframe surrounding the expense.

One-time expense report

For most situations, a simple one-time expense report can cover the one-off expenses your employees might incur. These expenses usually involve things like travel, airfare, fuel, and meals.

In this case, your expense report can be fairly basic and include only a minimum of data. The report should include the employee’s name, but the report itself can simply be a one-line description of each relevant expense, as well as the date on which the employee spent the money.

Employees should still be asked to keep receipts or tax invoices to supply adequate documentation. Otherwise, this simple approach works for most common business situations. Whatever the format, set a written expense policy that says what can be claimed, who approves each claim, and how quickly claims must be submitted, and keep receipts somewhere only the people who need them can access.

Monthly (or recurring) expense report

A monthly expense report can be useful when your employees incur various expenses as a result of their employment. Travelling sales representatives, for example, might have a frequent need for travel or car expense reimbursement.

These templates might also be useful if you’re working on a project with recurring expenses. For example, you might contract a graphic designer or web developer across several projects; their invoices go through accounts payable, but tracking those costs by project on a recurring report shows what each project is costing.

These reports are also simple, though you can divide expenses into categories (travel, meals, etc.) to keep things simpler.

Long-term expense report

You might also consider a long-term expense report, which you can use to track quarterly or even yearly expenses. Rather than monitoring specific projects or employees, a long-term expense report provides a view of your company’s overall spending trends.

These reports are often further divided into monthly totals, which can then discern seasonal trends in spending. This information can help you with long-term business planning, similar to the reports generated using online bookkeeping.

Conclusion

Visory runs the finance function for professional services businesses: bookkeeping, payroll, accounts payable and receivable. We know it’s hard to juggle projects, employees, and your business’s books.

With Visory’s bookkeeping, a dedicated team records and reconciles your expenses each month, working with Visory’s AI, Delphi, which the team oversees, so you can see what each project is costing and spend more time on your core business. See how Visory works in practice.