9 min read

How to Create an Expense Report: A CMA’s 4-Step Guide

QUICK SUMMARY

Having a clear expense reporting process - or software - saves your team time, energy, and money. Here's how to do it efficiently.

TABLE OF CONTENTS Expense Report Basics Choosing the Right Tool 4-Step Expense Report Creation Process How to Submit Reports Verifying Reports Common Mistakes Audit Trails

On average, it takes 20 minutes to manually complete an expense report. Multiply that by the number of expense reports you approve each month and... you have a lot of time spent inefficiently.

Here’s how to make an expense report quickly and easily, with little time wasted.

The Basics Of Expense Reports

An expense report is a summary of expenses categorized based on various criteria, such as project, department, or employee.

For example, suppose your employee is traveling to Chicago from your office in San Francisco. The employee will likely incur various expenses, planned or otherwise, during the business trip—these could be taxi rides or a meal with an associate.

You need the employee to create an expense report summarizing the business trip expenses so that you can verify them, approve them, and reimburse the employee in question.

It’s best practice to put these travel expenses into software so you can adequately track them and their impact on your bottom line. If you’re stuck with manual reports, you’re wasting a ton of time and potentially violating IRS deductibility rules.

Choosing The Right Tool For Expense Reporting

I don’t recommend taking the “traditional approach” and aggregating business expenses into an Excel sheet but, if this is your preferred method, you still have some options.

Excel sheets require you to manually input expenditures as they’re incurred. It’s slow and tedious, but at least you won’t have to spend on expense-tracking software. If you choose to use this method, using good templates can help save some time—here are some templates I’ve found:

If you’re dealing with too many expense reports or simply want to level up your systems, investing in expense report software can help. Here are some great ones to consider:

Step-By-Step Guide To Creating Expense Reports

Though potentially time-consuming, expense reports ought to be very simple. Here’s a four-step process for creating expense reports:

Step 1: Collecting Receipts

The person incurring the expense must collect a receipt. In addition to verifying internally reported expenses, receipts are also required to claim tax deductions.

For example, the IRS requires companies to keep records of all expenses incurred while traveling away from home, except for expenses that are under $75 or incurred for lodging, according to Section 1.274-5(c)(2)(iii).

Step 2: Itemize Expenses and Add Dates and Other Details

The employee must create an itemized list of expenses and sort them by date. They must add columns for description, code, and other details for each itemized expense.

In some cases, they might need to add expense-specific details. For example, if they’re using a company car when traveling, they should mention the start and end readings next to fuel expenses.

Step 3: Categorize Expenses

Categorizing expenses makes things easier when the time comes to file your tax returns. You could require employees to sort expenses into various categories, such as:

Insurance
Advertising
Office expenses
Travel
Rent
Wages

The expense report should show the subtotals for each expense category as well as the total amount for all types of expenses.

Author’s tip:

Factor in any over- and under-payments in the expense sheet before completing employee reimbursements.

Step 4: Send the Report

Advise employees to double-check the totals before finalizing the expense report. Request them to attach receipts to the report so you can use them as a reference while assessing the expense report.

The receipts can be either printed or scanned copies. Once everything is in order, employees can submit, email, or print out and hand-deliver the expense report according to your organization’s best practices.

How To Submit An Expense Report

If you use software, there ought to be a pretty clear process in place, which will automatically notify you when an employee submits an expense report.

If you’re not using software, your team can submit expense reports in the form of an Excel or Google Sheets file. PDF and Word documents are sometimes used but much less popular (& for good reason).

Team members can email these expense reports to the relevant person, use the relevant Slack channel, or submit a physical copy according to your company policy.

Verifying The Expense Report

Here are two steps involved in verifying expenses in an expense report:

Checking expense data: This involves verifying amounts, tax data, and other details. This may not be possible when you’re approving hundreds of expense reports a week so prioritize the reports that are more likely to have expense violations, such as travel expenses. If an employee wants to spend money on a business dinner, ask for a guest list, ideally before the dinner.
Approval by a manager: The manager determines the legitimacy of the expense report by verifying if the expenses were part of their role. However, it’s not uncommon for a small business owner to directly approve expense reports when teams are limited.

5 Common Mistakes When Submitting Expense Reports

Creating expense reports is simple but prone to many errors. You can eliminate many of these errors by automating the process. Here are some common mistakes to keep in mind:

1. Not Claiming an Expense

It’s easy to forget about expenses when traveling—this could happen if the employee is too busy, paid for expenses in cash, or just didn’t know the expense was reimbursable.

Expense management software can make tracking your expenses easier. Employees can take a photo while on the move to record an expense. The software also reminds them about submitting expense reports.

2. Not Paying Attention to Company’s Expense Policy

Reading the entire expense policy as well as having a copy handy is critical. When an employee makes mistakes, the software could detect it as fraudulent activity.

Your company’s software also sends notifications whenever someone submits out-of-policy expenses, so ideally, any such expenses should be discussed with the travel manager or department head before making the payment.

3. Losing Receipts

We’ve all been there. Losing receipts for expenses paid in cash can translate to the employee losing money because you can’t approve expenses until they submit a receipt or expense document.

If your company uses a mobile-friendly expense management solution, employees can take pictures of receipts as they collect them. Even if they lose the physical copy, they can use the software copy as proof.

4. Mixing Personal and Business Expenses

Suppose an employee had a great meeting with a client in a restaurant. They stayed after the meeting to meet some friends over dinner but didn’t close the tab first. This means the employee’s receipt for the restaurant includes everything they ordered, mixing personal and business expenses.

While this might appear to be a small problem, it can turn into a mess when the employee wants to request reimbursement. Such acts might be viewed as careless or even deceitful.

Using separate payment methods is a great way to avoid mixing personal and business expenses. For example, corporate smart cards can prevent employees from spending out-of-pocket money so keeping expenses separate is easier.

5. Duplicate Expenses

Duplicate expenses can cause discrepancies in the company’s financial statements. The company might even consider this fraudulent behavior, and in the worst cases, the company could end up paying a fine.

Expense management software can help avoid duplicates to some extent. Many expense management solutions can detect duplicates based on predefined rules or using AI. They trigger a warning whenever there’s a duplicate so you can confirm or eliminate that expense.

How to Maintain Expense Report Audit Trails

Maintaining an audit trail helps you prevent fraud, stay compliant, and collect the data needed for internal audits. To maintain expense report audit trails:

1. Make Submitting Proof Easier

Allow people involved in the transaction to submit proof conveniently.

For example, you could allow employees to hand in digital copies or directly enter data into software instead of requiring physical invoices. Many companies provide corporate credit cards so they can track all expenses on a single statement (and get credit card-specific rewards for doing so).

You can further simplify things by automating the process using expense reporting software that integrates with your bank and automatically registers expenses.

2. Digitize the Audit Trail

Digitizing audit trails makes things easier for people submitting expense reports as well as the people approving them.

When approving expense reports, digital storage means that you can apply filters and easily search for information, rather than sorting through a stack of paper. This allows you to get through expense reports faster and with greater assurance that nothing was missed.

3. Make the Process Error-Free

Manually recording expenses into an expense report is prone to errors. An employee could mistype a number or forget a line item.

Automated expense management solutions can address many of these problems. For example, an expense tracking solution with OCR (Optical Character Recognition) can scan physical receipts and automatically fill in expense details within the software.

4. Use a Single Solution

Using one solution to collect receipts, record expenses, and perform invoice reconciliations helps keep full audit trails in one place.

Maintaining all the data required for an audit in one place ensures you don’t have to look too far for information when you need it.

Though low price tags for task-specific software may be enticing, try to anticipate your future needs when evaluating expense management or audit management software to keep things simple.

Simplify Expense Reporting

The most successful modern businesses are focusing on automating the routine parts of their workflow, from bookkeeping to expense reports.

When you automate this, you’ll find that, while approvals still require some manual work, you’re getting significantly done - more accurately - in much less time.

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