What Is an Expense Report & How Do You Create One?

An expense report is a formalized document used to detail business-related costs. It serves as a record for expenditures incurred by individuals, typically employees, on behalf of a company. These reports are fundamental for financial management, ensuring proper tracking and accountability of funds.

Defining Expense Reports

An expense report is a structured document that employees use to record business-related costs paid out-of-pocket or through a company card. For employees, the primary purpose is to seek reimbursement for legitimate business expenses. For businesses, expense reports are essential tools for tracking and categorizing spending, managing budgets, and maintaining accurate financial records for accounting and tax compliance.

Businesses use these reports to gain a comprehensive view of expenditures, allowing them to monitor spending trends, control costs, and make informed financial decisions. Furthermore, expense reports are crucial for identifying tax-deductible expenses, which can potentially reduce a company’s tax liability. Employees such as sales representatives, consultants, or any staff member incurring costs for travel, meals, office supplies, or client entertainment typically prepare these reports.

Components of an Expense Report

Creating an expense report requires specific information and documentation for each expenditure. Each reported expense should include data points to ensure accuracy and compliance. This includes the date the expense was incurred, the vendor or merchant where the purchase was made, and the exact amount spent, including taxes and fees. A clear description of the expense and its business purpose is also fundamental. Categorizing expenses (e.g., travel, meals, office supplies, client entertainment, or mileage) helps with budgeting, analysis, and proper tax classification.

The accompanying documentation, primarily receipts or invoices, is necessary for an expense report. These serve as proof of purchase, providing a paper trail for auditing and compliance. Receipts should contain the vendor’s name and contact information, the date of purchase, an itemized list of goods or services acquired, and the total amount paid. While credit card statements confirm a transaction occurred, they generally lack the itemized detail required for full compliance and reimbursement. The IRS mandates that companies retain receipts for expenses, particularly for travel, meals, and entertainment, to substantiate deductions.

Common categories of expenses typically found in reports include business travel (flights, accommodation, ground transportation), meals during business trips or client meetings, and office supplies. Other frequent expenses cover client entertainment, mileage reimbursement for personal vehicle use, and professional development like training or software subscriptions. Maintaining organized receipts, whether physical or digital, supports accurate financial reporting and simplifies the reimbursement process.

Submitting an Expense Report

After gathering information and documentation, employees compile and submit the expense report. This compilation typically occurs using specialized expense management software, company-specific online portals, or, in some cases, physical forms and spreadsheets. Employees enter the details for each expense, ensuring that data points like date, amount, vendor, and business purpose align precisely with the attached receipts. Many modern systems allow for digital attachment of receipts, often by simply taking a photo with a mobile device or forwarding email receipts, streamlining the process and reducing the risk of lost documentation.

The report is then submitted for review. The submission method often involves an online portal or internal system that routes the report to the appropriate approver, usually a direct manager, for initial review. This review confirms adherence to company policies and budget guidelines. Following manager approval, the report typically proceeds to the finance department. The finance team verifies compliance, cross-checks expenses against budgets, and ensures accuracy before processing.

The final stage is the reimbursement process, where approved funds are returned to the employee. This payment is commonly issued through direct deposit or added to the employee’s next paycheck. While there is no federal law specifying a precise deadline for reimbursement, many states have their own guidelines, and employers are generally expected to process payments within a reasonable timeframe, often by the next payroll cycle or within 30 days. Timely reimbursement supports employee satisfaction and accurate financial records.