What Are Expense Reports And Their Importance (+Free Expense Report Template)
An expense report is a necessity for any employee who wants to claim reimbursement for any expense they have incurred for business purposes such as meals or mileage. Also, it is important for businesses as it helps in tracking expenditure and filing taxes efficiently. In this blog, we discuss with you what exactly an expense report is, its benefits, and how to create one. Also, we share with you a customizable expense report template that you can use for your company. Read on!
What Is An Expense Report?
An expense report is a formal document (paper or digital) that itemizes all expenses incurred during the course of performing job functions. For instance, if an employee is traveling for a business conference, she would use some means of transport, and incur many expenses during the trip such as meals, accommodation, and client meetings. All of these may be included in the expense report and be reimbursed as per the company T&E policies. The policies entail the spending limits for each type of expense and what happens if they spend out of policy.
An expense report typically has the following sections or columns:
- Employee details – The information of the employee who is filing reimbursement such as her name, department, designation, etc.
- Date of each expense – The date when the item was purchased. This should match with the date on the attached receipt
- Type of expense – There can be different expense categories as per your travel and expense policies such as transportation, accommodation, and incidental expenses. Read what can and cannot be claimed as business travel expenses here.
- Vendor details: The name and details from whom the item was purchased
- Receipts: Proof of expense such as bills or invoices. Employees can state if they have attached the receipts or not
- Cash advances paid to the employees
- Value (sub-total) of each expense category – The total amount spent under each expense category
- The total expense amount to be reimbursed – The total amount to be paid back to employees after the addition of taxes and deductions
Employees who often pay out-of-pocket for business expenses need to submit expense reports to claim reimbursements within a particular time frame, as per the T&E policy.
Expense reports are usually generated on a monthly, quarterly, or annual basis. Monthly and quarterly expense reports keep a track of all business spendings your company has made within that period. A yearly expense report is used for deducting expenses on tax returns.
Benefits of Expense Reports
Generating expense reports helps in:
1.Efficient expense tracking – The expense reports help in tracking the overall spending of the company. You can see how much your employees are spending for different expense categories such as meals, incidental expenses, etc. They can see the expenses that are driving the costs up and strategize on how to reduce them.
2. Preparing budgets – When employees submit detailed and accurate expense reports, you get an idea about creating a strong financial plan for your business. It gives you visibility on which departments would require more budget allocation. Also, you can check if the departments are adhering to the allocated budgets to keep your business on the right track, financially.
3. Proper reimbursements – Since expense reporting becomes a standardized process of expense management, employees are aware of the expenses that can be or cannot be reimbursed. This helps in the proper filing of expense reports. Also, since employees lay down all the details of the expenses along with the receipts, it becomes easier for finance managers to check if the expenses are legitimate.
4. Tax filing and deductions – Expense rereports help in keeping track of the deductible expenses that can be used to file taxes, at the end of the year.
Types Of Expense Reporting Processes
The expense reporting process can be manual or automated; we have explained both of them in detail here:
1.Manual expense reporting with templates – Since, creating expense reports manually is a tedious task, some businesses provide their employees with customizable expense report templates that can help them prepare reports in PDF or spreadsheets. Certain businesses have some mandatory columns to be filled by employees in the expense report. The employees fill in all the expense details (as mentioned in the first section), attach corresponding receipts, and send them to their manager for approval. The manager, then, checks if there are any policy violations or fraudulent claims. After approving it, the manager sends the report to the finance team for reimbursement.
2. Automated expense reporting – An automated expense management software such as ITILITE, your employees can generate expense reports in a few clicks. They can capture the receipts digitally and later, the expense data can be extracted from the receipts to create expense reports. They can also connect their credit/debit card or corporate card to the software for reconciliation and re-check easily all the expenses. They can then send the expense reports for approval to their managers. The managers can check if there are any warnings or alerts regarding policy violations. The approved expense reports are automatically sent to the finance team for reimbursements. You can track and manage all the reports effectively. Also, you can save a lot of time and money with expense management automation.
How To Create An Expense Report
Here’s a step-by-step guide on how you or your employees can create expense reports:
1.Choose a template or software – To create an expense report, the first step that your employees will take is to either select an expense report template or expense management software. They will, then, download the template and customize it as per your company’s needs. To save time as your business and the expenses grow, you can integrate expense management software. Add all the corporate cards to it so that expenses are added automatically as your employees make the spending.
2. Edit columns – Whether your employees download a template from the internet or use the one your expense management software offers, they will need to add or change columns as per their expenses. They might or might not need the “incidental expenses” column.
3. Add all expense categories separately – Ask employees to add each expense category in a new row and with as much detail as possible. Ensure that your employees add the client name or the project name for easier expense tracking.
4. Add total amount – Each expense category will have a subtotal amount. Your employees will need to make a grand total of all the expenses, including the taxes and subtracting advances (if paid by the company).
5. Attach receipts – Employees will absolutely need to attach receipts of all the expenses incurred for business purposes. If they are submitting the reports manually, they will have to take a printout of the expense report and attach the photocopy of all the receipts. If they submit the expenses electronically, the receipts can be scanned and be attached as files. Attaching receipts is necessary for reimbursements. Know everything about accountable reimbursement plans here.
6. Send the report for approval – This is the final step. After your employees have created the expense reports, they need to share them with their managers for approval either in person or electronically, or via the expense management software.
Effortless Expense Management With ITILITE
Filing expense reports is the first part of the expense management process. For getting visibility on overall company spending and to control costs, you need to maintain policy compliance and ensure timely reimbursements. This is where an integrated travel and expense management software such as ITILITE can help.
Your employees can file expense reports easily by automatic scanner even on the go. ITILITE can help automate expense report generation and submission thus, controlling any out-of-policy violations or fraud. To know how to streamline your expense management processes, book a demo with our product experts today.
Free Expense Report Template
Having a neat expense report template with clearly demarcated sections for each expense type can make the expense reporting as well as the reimbursement process easier. Here’s a free template that you can share with your employees for submitting expense reports.