What Are Expense Reports and How Do They Work?

Expense reports allow employees to seek reimbursement for business-related expenditures paid from personal funds. They are fundamental for companies to track and categorize spending, ensuring financial oversight and adherence to tax regulations. For employees, these reports ensure compensation for work-related costs, while businesses gain detailed financial tracking, budgeting insights, and compliance.

Key Information and Documentation

An expense report details costs incurred by an employee on behalf of their employer. Common expenses include business travel (airfare, lodging, ground transportation), meals, office supplies, client entertainment, and mileage for personal vehicle use.

For each expense, specific details must be provided for accuracy and compliance. This information typically includes:

• The date the expense was incurred
• The name of the vendor or merchant
• The exact amount spent, including any taxes
• A clear business purpose or justification for the expenditure
• The method of payment (e.g., personal credit card or cash)
• The employee’s name and department

Supporting documentation, particularly receipts, is essential for an expense report. Receipts verify expense legitimacy, ensure adherence to company policies, and aid in tax audits. A valid receipt includes the date, vendor name, itemized list of goods or services, and total amount paid. The Internal Revenue Service (IRS) requires documentation for lodging and expenses of $75 or more. Digital receipts are accepted if clear, complete, and securely stored.

Submission and Reimbursement Process

Once an expense report is prepared with all required information and supporting documentation, it is submitted to the employer. Many organizations utilize online expense management systems that allow employees to digitally upload their reports and receipts. Some companies may still accept physical forms or scanned documents.

Following submission, the expense report enters an internal approval workflow. This typically begins with a review by a direct manager, who verifies that expenses align with company policy and budget. The report then proceeds to the finance or accounting department for a thorough review, ensuring compliance. During this review, clarification requests may be issued if information is missing or unclear, and expenses that do not meet policy requirements may be rejected.

Upon final approval, employees are reimbursed for their out-of-pocket expenses. Reimbursement is commonly issued through direct deposit into the employee’s bank account or via a company check. While there is no precise federal law on reimbursement deadlines, many companies aim to process payments within one to two weeks, or by the next payroll cycle, after a complete expense report is approved.

This promptness helps ensure employees are not unduly burdened by carrying business expenses on personal credit. Companies maintain detailed records of approved expense reports for financial accounting, budgeting, and to support tax deductions in the event of an IRS audit. These records should typically be kept for at least three years, though longer retention periods, such as six or seven years, are often recommended for tax purposes.