Expense report definition
/What is an Expense Report?
An expense report is a form used to track business spending. It is most commonly completed by employees to itemize expenditures for which they are requesting reimbursement. Receipts are typically attached to the form if the related expenditure amounts exceed a certain minimum amount. The employer examines the submissions for accuracy and validity, and pays employees the requested amounts. The employer can then record the reimbursed amounts as a business expense, which factors into the amount of accounting profit and taxable profit recognized.
Expense reports can also be used to detail expenditures made against an initial employee advance. If so, the employer still records the submitted amounts as a business expense, but there is no reimbursement; instead, the employer deducts the expenditures from the amount of the employee advance. The related journal entry is as follows:
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Information Included in an Expense Report
An expense report can include a number of company-specific information fields, but usually requires at least the following core information:
Date on which an expenditure was incurred (matches the date on the related receipt)
The nature of the expense (such as airline tickets, meals, or parking fees)
The amount of the expense (matches the amount of the related receipt)
The account to which the expense should be charged
A subtotal for each type of expense
A subtraction for any prior advances paid to the employee
The grand total of the amount of reimbursement requested
Expense Report Controls
Here are several controls that businesses can apply to the use of expense reports, along with brief descriptions of each:
Clear expense policies. Establish and communicate detailed policies specifying allowable expenses, spending limits, and required documentation. Clear guidelines help prevent misunderstandings and reduce the risk of unauthorized or excessive spending.
Pre-approval requirement. Require employees to obtain approval for certain types of expenses or amounts above a specified threshold before incurring them. This control helps manage budgets proactively and prevents unapproved spending.
Receipt submission. Mandate that employees attach original receipts or digital copies for all expenses claimed. Requiring receipts ensures that expenses are legitimate, accurately reported, and compliant with company policies.
Itemized reporting. Require employees to submit itemized expense reports detailing the nature, date, and purpose of each expense. Itemization makes it easier to verify the validity of claims and detect unusual or unauthorized spending patterns.
Supervisory review and approval. Ensure that all expense reports are reviewed and approved by a supervisor or manager before reimbursement. This step adds a layer of accountability, as managers are responsible for verifying that expenses comply with company policies.
Automated expense management systems. Use automated software to track, categorize, and flag expenses that exceed policy limits or show unusual patterns. Automation improves accuracy, reduces processing time, and makes it easier to enforce policies consistently.
Periodic audits of expense reports. Conduct random or scheduled audits of expense reports to verify compliance with policies and detect potential fraud. Regular audits act as a deterrent to misuse and help identify areas for improvement in the expense management process.
Training and awareness programs. Provide regular training for employees on the company’s expense policies, including how to complete reports correctly and the consequences of policy violations. Awareness reduces errors and increases compliance with the rules.
By implementing these controls, businesses can minimize the risk of misuse or fraud, streamline the expense reporting process, and ensure that reimbursements align with corporate policies.
The Departmental Expense Report
The expense report concept can also refer to a detailed listing of expenses incurred by each department of a company for a reporting period. This information is examined to see if any actual expenses incurred were different from expectations, in which case management can investigate the reasons for these variances.