All about expense reports and the expense reporting process
Managing thousands of employee expense claims and reimbursements daily is not easy for companies.
Expense reports link employees and finance departments by allowing employees to request reimbursements and finance teams to track expenses and ensure swift disbursements.
Let’s understand expense reporting and the steps to create and use expense reports.
What is an expense report?
Broadly, an expense report is a detailed list of business expenses incurred by an employee on behalf of the company. The reports could be either physical sheets with listed expenses or digital documents.
Employees use these expense reports or an expense claim form to request reimbursement for business expenses they incurred out of their own pockets. The employees attach receipts, invoices, and any other relevant documents of proof for the expenses, and the total amount is typically reimbursed.
Employees need to file such expense reports periodically, and they help companies keep track of employee and company spending.
Dhanashree
Types of expense reports
Employees use different types of expense reports depending on the company's size and the frequency of business expenses.
One-time expense report
As the name suggests, a one-time expense report is used for a rare one-time payment situation. It is most commonly used by employees who rarely incur expenses.
Recurring expense report
Recurring expense reports usually examine the company's monthly expenditures, such as rent, salary, and utilities.
Mileage tracking report
Employees use mileage tracking reports to claim reimbursements when they use their personal vehicles to commute to their workplace or for business rides. These reports usually contain a mileage log book and trip information, such as the total distance traveled, purpose, destinations, etc.
Travel expense report
Commonly known as a T&E report, a travel expense report includes a breakdown of all the expenditures made by an employee for a certain business trip.
Long-term expense report
Companies track their spending by generating quarterly or annual expense reports. These periodic expense reports are broadly categorized as long-term expense reports that track monthly overall spending.
These reports help companies visualize their spending on a specific project, department, or cost center. They also help business owners track their overall spending and locate tax deductions for inclusion in their annual tax returns.
What should an expense report include?
Employee information
The unique employee information is at the top of the expense report. Typically, that includes the employee’s full name, department, and employee ID number.
For every expense that goes in the report, the line item should include the following:
Date
The date of each expense should match the receipt or invoice attached to the report attached for proof.
Merchant or Seller
The merchant or vendor details should be mentioned for each expense.
Category and description
The purpose of the expense (e.g., airfare, meal receipt) should be added clearly to the expense category, along with any required description.
Total amount
This is the total expense, including the taxes. The amount of each expense should perfectly match the receipt/invoice amount.
Example of an expense report form
How to make an expense report in Excel?
Employers can use the following steps to establish a swift expense reporting process.
Choose an expense report template
A simple Google search will bring hundreds of expense report templates to you. You can use our free Excel expense report template to get started.
Customize the columns
The standard ones that are a must-go in your expense reports are:
- Date
- Vendor
- Category
- Description
- Amount
These columns should locate common expenses in your business. You can customize these and include additional columns to include different expense categories.
This will help you itemize expenses by tax category. According to the IRS, businesses can claim some expenses as deductions under specific categories.
Report each expense
All expenses should be reported as individual line items, preferably in chronological order, with the latest expense added at the end.
All the compulsory details should be filled in correctly, or the reports risk being flagged or rejected by the finance department.
Calculate the total amount
All expenses should include the amount inclusive of taxes. As there are multiple expense categories, calculate subtotals for individual expense categories as well. This will help improve overall spend visibility for different expense categories.
Attach proof of expenditure
Expense reports are required for most reimbursement claims. You must attach a digital receipt/ invoice wherever possible as proof of expenditure for the expense reimbursement claim.
Print/Submit the expense report
The final step for an employee in the expense reporting process is to print or submit the expense report for approval. Keep track of the status of your expense report.
What is expense reporting?
I hope you have a fair idea of how to create and use expense reports. But that’s just one step of the expense reporting process.
Expense reporting can look different for different organizations. For small companies with only a few employees, documenting occasional expenses followed by reimbursement claims where required is a simple process.
However, expense reporting can look very different for large companies and enterprises. With thousands of daily expenses, the finance department is swarmed with a high volume of expense reports.
The entire process of recording, classifying, and documenting employees’ expenditures and the company’s spending is called expense reporting.
Expense reporting process
The expense reporting process is crucial for finance teams in tax filing, auditing, bookkeeping, budgeting, and forecasting.
While many small companies prefer to stick to manual paper or Excel-based expense reporting, some automate the process partially or fully using expense reporting software.
Let’s understand these different methods:
Manual expense reporting
Employees submit paper-based expense claim forms with physical bills and receipts in manual expense reporting. The admin or manager must approve or reject the expense report based on its legitimacy.
Most companies have moved from paper-based processes to Excel-based reporting, where the finance or accounts department manually documents, verifies, and initiates reimbursements for the submitted expense reports.
Small to mid-sized companies prefer such low-cost expense reporting processes.
Automated expense reporting
With many advanced expense reporting tools on the market, different steps like expense report creation, verification, and reimbursement initiating can be easily automated.
Employees can submit expense reports and claim reimbursements without time-consuming log sheets, and finance teams can use an OCR-enabled receipt verification tool to verify and approve the reports.
Expense reporting software
Expense reporting software, commonly known as expense management software, is the most preferred choice of medium—to large-sized companies for managing employee expenses.
Excel-based manual expense reporting can be tedious and time-consuming. As a company expands, it's better to move to integrated expense reporting software.
This software automates all steps of the reporting process into one platform and can be easily integrated with other finance tools, such as accounting and HRMS software.
Lakshmi Gopal
Let us do your expense reporting for you
With Nanonets, employers can easily automate any workflow of the expense reporting process.
Employees can easily create and submit expense reports on the go, while managers and admins can quickly approve them with a click.
Here’s how each workflow automation looks like:
- Expense capture: Employees can capture expenses and receipts from 10+ different sources, which employers can customize according to their common expense sources.
- Expense recording: With advanced OCR technology, all expenses, be they paper receipts, invoices, or screenshots, can be easily read and captured into your employee expense reports.
Nanonets automatically inputs the receipt's date, vendor name, amount, and currency for you—no manual entry is required. You can even train the tool to locate and capture additional details.
- Create expense reports: With real-time reporting, employees can easily create reports on the go and filter them into different expense categories.
- Approvals: Set up and customize approval workflows and ensure validation checks by admins and the finance department at each step.
- Policy compliance: By flagging mismatches and non-compliant expenses, Nanonets helps finance teams accept only legitimate reimbursement claims. This ensures policy compliance and prevents expense fraud.
- Reimbursements: Reimburse your employees easily and track the status of reimbursement requests for all employees in one place.
- Integrations: Nanonets' tool can be easily integrated with your preexisting accounting software and other tools to ensure seamless sync.
Final word
Businesses must include expense report forms in their documentation for smooth expense reporting and reimbursement.
These reports allow companies to visualize employee spending fully and are crucial for an efficient spending management process.
Frequently Asked Questions (FAQs)
Q. What is a monthly expense report?
A. Employees use a monthly expense report to submit their expenses and request reimbursement. Companies also use this report to keep track of employees' monthly expenditures.
For small business owners, such monthly reports can help budget, forecast, and reduce costs.
Q. How to create an expense report in Excel?
A. An expense report can be easily created in Excel using the following four columns: Date, Merchant, Amount, and Category.
You can use Nanonets’ free Excel expense report template to customize your expense report form.
Q. How can I categorize expenses in an expense report?
A. The most common expense categories as per the business purpose are
- Operating expenses (rent, utilities, office supplies, etc.)
- Personnel costs (salaries, payroll taxes, etc)
- Technology and software
- Marketing and advertising
- Travel and entertainment (transportation, airfare, meals, mileage, etc.)
- Professional fees
- Insurance
- Taxes and licenses (income tax, sales tax, etc.)
- Research and development
Karan Kalra
Q. Can I use software to automate expense reporting?
A. Employees often use their own money for business-related expenses and request reimbursement later. Software that automates the expense reporting process from start to end can save your employees precious time and ensure a smooth reimbursement process.
However, not all tools are created equal. If you are a small business owner, you don’t need costly expense management software. Locate the biggest pain point in your expense reporting process and automate that workflow using a tool.
Try Nanonets free tool to automate your expense reporting process.
