Expense Report

What is the Expense Report?

The expense report is defined as the type of report that documents the expenses incurred by the business or by the employees of the business and can be maintained on a monthly basis, quarterly basis or on an annual basis.

Explanation

Expense-Report

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For eg:
Source: Expense Report (wallstreetmojo.com)

Features

How to Create an Expense Report?

Different organizations operating in different industries have different methods and templates. However, the payroll and expense reporting department of any organization should follow the following steps to create and formulate –

  1. The payroll department should have approvals on expense policy from respective departments of the organization.
  2. Basis the applicable policy, the executive should access the online expense entry system or perform data entry in the consolidated excel.
  3. The executive should enter the date of incurring the expense.
  4. The executive should enter the expense amount and mention the applicable vendor name.
  5. After revising the entered information, as mentioned in the receipt, the executive should submit the report to the next level approval.

Example of Expense Report

Let us take the example of ABC Inc. The employee is traveling to the onsite to pitch a new project. On 23 Jan 2019, the employee presented a meal expense of $200, the hotel cost of $100, and misc. cost of $250. On 24 Jan 2019, the employee reported entertainment and movie expenses of $130, along with a meal expense of $230 and a Hotel to stay expense of $500.

Help the payroll executive to prepare the report of the employee’s reported expenditure.

Solution:

Prepare the Expense Report as shown below: –

Expense Report Example 1-1

The following would be the results: –

Expense Report Example 1-2

Columns of Expense Report

The columns normally would be composed of the following details: –

  1. The expense incurred date.
  2. The type or nature of expenditure;
  3. The name of the vendor from where services were taken or items was purchased.
  4. The expense amounts.
  5. The name of the head of the account where it should be mentioned and charged.
  6. Deduction and adjustments on prior submissions made by the employees;
  7. Each account type should be subtotalled.
  8. The total of the overall amount to be reimbursed as requested by the employee.

Importance and Usage

The expense reports are maintained to drive accountability in terms of spending habits of the organization. These are the reports which could be referenced in the event of financial dispute and audit activities. With proper maintenance and accountability of these reports on a periodic and regular basis ensures that your employees are budgetingBudgetingBudgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time.read more in full accountability to keep the business financially protected and viable.

Such reports make both employee and employer accountable to business in terms of their spending habits. Some expenses enjoy deduction on the taxable income as per the income tax laws, and therefore to enjoy such deductions, big corporations have to submit a consolidated report to the revenue department of the country. It can be submitted as a supplementary document along with reporting of total applicable expenses in the tax forms while filing for taxes with the revenue service.

Benefits

Drawbacks

  • They are suitable for a big corporation and not for solo entrepreneurs and micro-enterprises.
  • These reports may not tally with the receipts as enclosed by the employees due to errors in data entry of information.
  • In simpler words, the reports are always prone to misrepresentations and accounting frauds.
  • It increases administration costs of handling items and regular updating of expense items in the reporting system.
  • It is very hard to monitor each expense item under the expense policy issued if the size of the organization is very big.

Conclusion

The expense reports can be regarded as reports that highlight the type of expenses that can be reimbursed and the type of expenses that cannot be reimbursed. The reimbursement of expenses happens as per the applicable tax laws of the nation and the applicable expense policy of the employer. It could be useful for large organizations that normally incur huge expenditures on day to day basis and helps in the streamlining of the overall process.

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