How to Create an Expense Report in 6 Steps

How to Create an Expense Report in 6 Steps
Contents

Expense reports are often associated with hunting down missing receipts and hours of mind-numbing data entry. In many organizations, they have become a dreaded but necessary process.   

Having a simple expense report workflow offers relief for owners and employees alike. It also facilitates cash flow management, which is vital to the health of early-stage companies. 

Expense reports have various key functions important for small businesses, including reimbursing employees for business expenses, tracking expenses, identifying policy violations, and preparing companies for audit. Keeping careful records throughout the year makes it easier to complete tax returns when the time comes. 

The reality is that accurate tracking has broad implications for your business budget and future planning.

What is an expense report?

An expense report is a form that details employee expenditures to track and regulate spending. Businesses use expense reports to reimburse employees who have spent their own money for business purposes. Typical expenses may include travel and entertainment costs, or necessary business costs often within a defined budget. 

Any expense reimbursement by the company is subject to company policies, and the expense report provides a way to check for policy violations.  

Expense reports should itemize reporting and properly categorize expenses. Accurate reporting helps keep track of project costs or track deductible expenses for tax purposes. Deductible expenses can include items such as travel expenses, skills development, rent, insurance, and motor vehicle expenses. 

What to include in your expense report template

Put some thought into structuring your expense report to gather all required information so that there’s no need for the finance team to chase employees with additional questions. It should cater for all the most important information about the expense. The information you require may differ according to your business needs, but some basic requirements are universal, such as: 

  • Name of the person claiming the expense, along with contact information
  • Date of purchase
  • Vendor – where the item was purchased
  • Expense type (meals, travel, home office, etc.)
  • Description of the expense
  • Subtotals for each expense category
  • Payment method
  • Total amount

Specialized expense report templates keep reporting straightforward for a given purpose. For example, a travel expense template with a mileage log breaks down costs related to a business trip. Meanwhile, a project expense template can provide clarity on fixed and variable materials and labor costs. You’ll need to find the template that best fits your business.

Steps to create your expense report

Step 1: Create the file 

Looking for an easy way to create an expense report? You could use a spreadsheet and create your own or download a template from the internet. Spreadsheet templates can include a drop-down menu with a checkbox to make category, client, or project selection easier. Label the file with relevant information, such as company, department, and time period tracked. 

Step 2: Categorize

Now you are ready to select the columns for your expense report. Include details such as the date, the vendor, the amount, and the expense description. Your expense report can include filters for common expenses, like car or entertainment costs. If necessary, add a clarifying comment or additional information. By doing this, you will save time and avoid confusion when it comes to tax returns.

The IRS provides expense categories, so it makes sense to categorize your expenses similarly to make tax time easier.

Step 3: Enter data

Itemize expenses with as much information as possible. Ensure that each line item contains the date, transaction details, account to be charged to, as well as client and project information to enable easier expense tracking. Each amount entered must include tax.

Step 4: Calculate totals

Add subtotals and totals to your expense sheet. Subtotals make it easier to see subcategory finances at a glance, enabling quicker decision-making and tax preparation.

Step 5: Receipts

Employees must attach receipts for claimed expenses to the report. The receipts must be reconciled with expenses before reimbursement.

If you really want to get organized, upload electronic copies of the receipts so they are easy to access when required for tax purposes. 

Step 6: Seek approvals

Once the expense report is done, recheck it and then print or email the report to the approver to obtain any necessary approvals or signatures.

Pitfalls of expense reports

Expense management with reports takes a multi-step approach. In a manual system, it involves submitting an expense claim, getting approval, scheduling payment, and then reimbursing the employee. The employee must wait out the process and might have already started the next cycle of expenditure by the time they receive payment. While they wait, they already paid for expenses out-of-pocket.

Using manual expense reports can result in numerous inefficiencies:

  • Delays and mismatches in cash flow timing and budgets. Employees spend the money and then request a refund, setting off a chain of approvals that may incorporate delays. Delayed financial reporting means insufficient clarity on your financial picture.
  • Manual errors like lost receipts or invoices. Employees may not be able to find receipts to substantiate spending. The administrative work involved with chasing missing paperwork, correcting misallocations, and approving expenditures can be inaccurate and time-consuming.
  • Budget overruns. If employees have overspent the budget, what do you do? If expenses fall within company policy, it may be hard to claw back spending, and you’ll find yourself over-budget. This reactive approach to expense management may damage internal and external relationships as you battle to deal with money already spent.
  • Forecasting issues. Late reports and errors mean when it comes time to forecast and budget, the data on the system may not be accurate or complete. You will be unable to make effective forecasts if you can’t process expenses on time. 

Eliminate expense reports with Lola.com

Although technology has improved, many organizations continue to use an inefficient and time-consuming expense reporting system. A recent survey found 43% of businesses still manage their expenses manually.

Lola.com offers businesses an easier way to manage expenses, eliminating expense reports through spend management.

Replace expense reporting with Lola cards

Lola corporate cards offer you the flexibility to permit employee or contractor expenditure while still limiting spending. Employees may use virtual cards with any vendor that accepts a Visa or Mastercard. You can also instantly create as many cards as needed. Payments are seamless, and if you don’t need to reimburse employees, you can also say goodbye to expense reports.

Manage employee policy violations

Keeping expense reports in the mix lets employees spend money first and have questions asked later. This leaves room for policy violations, which can result from plain ignorance to outright fraud. But there is a better way. With a Lola card, you can simplify the process by creating an individualized card for them.

Control costs at a granular level by setting spending limits and automatically applying spending policies. You can restrict the cards to be used for specific expenses. Before transactions can be approved, the purchase is validated against the policies and budgets you have set. 

Automate your expense reports

Purchases are linked to expense categories and budgets as they happen. Lola’s spend management eliminates the need for expense reports and allows you to compare your expenditure to budget in real-time. Integration with Quickbooks avoids month-end reconciliation hassles and accounting nightmares.

Budget to actual spend

Create budgets and spending controls assigned explicitly to employees, departments, or vendors. Overspending is essentially not possible, as any amount over the budget would be blocked. 

Virtual cards and real-time budgets give your financial employees the tools they need to manage their budgets. With Lola, your financial managers have real-time visibility, allowing them to take proactive actions to correct any problems.

Take control

Expense management is essential to the effective management of your business. Yet it is difficult to orchestrate using a manual system. Automated expense management puts budget control in your hands. With Lola spend, you manage the expenses when they happen, and employees can't overspend as you set the limits.

You’ll track expenses in real-time, avoiding nasty surprises and month-end bottlenecks. All your expenses are present on a single platform, ensuring easier administration and financial planning. 

Relieve your finance department of the administrative inefficiencies of manual expense reports. Doing this will free them to focus on more important tasks, such as creating accurate forecasts and budgets or analyzing cost-saving and investment opportunities.  


About the Author: Anna Yen
Anna Yen, CFA, has nearly 2 decades of experience spanning financial markets, cryptocurrencies, and digital marketing. Currently she manages digital assets at FamilyFI, working to empower families with financial literacy.