The expense report is defined as the type of report that documents the expenses incurred by the business or by the business's employees and can be maintained every month, quarterly basis, or on an annual basis. . It is a summary of expenses incurred during a particular period.
It helps in tracking and keeping a record of all expenses of a business, like travel, accommodation, etc. so that reimbursements can be done properly and on time. It is also useful in monitoring and controlling expenses, reducing costs, and maintaining a budget.
Expense report is a document that gives details about all the expenses incurred in an organization and its employees in a systematic manner over a particular period, related to food, accommodation, travelling, etc.
These expenses are the ones that the employees have incurred on the company’s behalf. The report shows details like the date, the type of expense, purpose of spending, the supporting documents and receipts.
Each small-sized to medium-sized business maintains an expense report. Mid-management level or the departmental level prepares such reports. It can be broken down into smaller divisions to determine which area or department of the business is costing more to the organization.
The company maintains such reports for purpose of audit.
They submit this report to the top management of the business. The top management decides which expense to reimburse to the employee and which not.
The reimbursed expenses are then utilized to recognize the taxable and accounting profit.
The expense reports can be regarded as reports highlighting 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 nation's applicable tax laws and the employer's applicable expense policy. Therefore, it could be useful for large organizations that normally incur huge expenditures on a day-to-day basis and helps in the streamlining of the overall process.
Guidelines
Given below are a few rules and guidelines that are strictly followed in an organization while preparing the report, so that the process is accurate and easy to prepare, access and interpret.
The expense report format consists of the expense policy of the employer for its employees.
It also documents the travel and entertainment policy as per which expenses won't be reimbursed to the employee by the employer.
It is maintained and prepared by the expense and payroll department of the organization.
When they receive the employee reimbursement and claim form, they will verify the details of the expenditure made by the employee as shared under applicable receipts and proofs and prepare the employee-wise report.
How To Create?
Different organizations operating in different industries have different methods and , expense report format. However, the payroll and expense reporting department of any organization should follow the following steps to create and formulate –
The payroll department should have approvals on expense policy from respective departments of the organization.
Based on the applicable policy, the executive should access the online expense entry system or perform data entry in the consolidated excel.
The executive should enter the date of incurring the expense.
The executive should enter the expense amount and mention the applicable vendor name.
After revising the entered information mentioned in the receipt, the executive should submit the report to the next level of approval.
Example
Let us look at the sample expense report to understand the concept.
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 stay expense of $500.
Help the payroll executive prepare the employee's reported expenditure report.
Solution:
Prepare the sample expense report as shown below: –
The following would be the results: -
Columns
The columns normally would be composed of the following details: –
The expense incurred date.
The type or nature of expenditure;
The vendor's name is from where services were taken, or items were purchased.
The expense amounts.
The name of the head of the account where it should be mentioned and charged.
Deduction and adjustments on prior submissions made by the employees;
Each account type should be subtotals.
The total of the overall amount to be reimbursed as requested by the employee.
Uses
The expense report for business are maintained to drive accountability in terms of the organization's spending habits. These reports could be referenced in the event of financial dispute and audit activities. Proper maintenance and accountability of these reports on a periodic and regular basis ensure that your employees are budgeting in full accountability to keep the business financially protected and viable.
Such reports make employees and employers accountable to businesses regarding 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
The expense report for business is extremely beneficial for any organization and has a lot of benefits if it is made and maintained properly. The benefits are as follows:
The expense report system makes it easier for the auditor to verify the details of expenses as claimed by the business.
It allows them to verify expense details with the receipts as available and attached by the employees.
The availability of many IT software in the markets allows the business to prepare, formulate, and customize reports.
Limitations
Along with benefits, it is also necessary to understand the limitations of the process so that it can be used properly to improve the efficiency of the organization.
They are suitable for big corporations, not solo entrepreneurs and micro-enterprises.
These reports may not tally with the receipts as enclosed by the employees due to errors in data entry.
In simpler words, the reports are always prone to misrepresentations and accounting fraud.
It increases administration costs of handling items and regularly updating expense items in the reporting system.
It is very hard to monitor each expense item under the expense policy if the organization's size is very big.
Expense Report Vs Invoice
Both the documents mentioned above a useful for financial purpose in an organization. The the purpose of both are different. Let us look at the differences between them.
An expense report system details the various expenses incurred in an organization related to travel, food, entertainment, accommodation, etc. But an invoice is a document requesting payment of dues related to goods and services that a vendor or a supplier sells.
The former tracks the expenses incurred in the organization related to its employees but the latter gives details about the goods purchased, the price, quantity, date, discounts if any, and the final amount due for payment.
The former helps in tracking and monitoring the expenses to reduce cost and wastage whereas the latter helps in collecting payments from the purchaser.
Thus, the above are the differences between the two.
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