Whether your eCommerce business has three employees or 300+, there is a good chance that your employees will occasionally make business expenses with their own money. For example, if they are attending a business conference, buying a meal for customers or vendors, etc.
An expense report is a simple way for employees to report business-related costs. This allows you to keep track of all of your employees’ expenses so that you can reimburse them as well as claim it as a deduction on your taxes.
Let’s dive into all of the details.
What is an expense report?
The expense report is the spreadsheet, form, or tool that your employees use to report business expenses made out of pocket. An expense is typically money a self-employed person or company spends as part of their activities to help them make a profit or conduct business.
Your employees can use the expense report form to request reimbursement for business expenses paid with one’s own money. Typically, the person submits a completed expense form and includes the receipt for the expenses they made.
As the business, you can then review each expense form and receipt to ensure the information is correct, valid, and is a reasonable business expense. If the expense is approved, you can reimburse the employee. Then, you can use the expense report to record the amount for the business’s records for accounting and tax purposes.
What should be on an expense report?
While each company may have specific data it needs to track, there is a standard set of information every expense report form should include:
- Identifying information on the person who is submitting the expense form – You will want to have the person’s name, the department they’re in, position, and employee SSN if applicable. You want enough information to ensure it’s clear who is requesting reimbursement.
- Date when the expense was made – This date will need to match the date on the receipt.
- Name of the place where the item or service was purchased from – This information should also match the receipt.
- Description of the expense – This information shows that it was an actual business expense, such as airplane tickets, business meals, or conference tickets.
- The dollar amount for each expense and the total amount being reimbursed- To make it easy to enter into your accounting system, you’ll want the information itemized if there are multiple expenses per form. You’ll also want to include a place for the employee to put the total amount they are requesting for reimbursement. This amount should match the receipts.
How do you categorize employees’ expenses?
Once an expense report is filed, your bookkeeper should make sure the expense is tied to the right category in your chart of accounts.
Correctly categorizing your expenses helps ensure you can prove to the government that the expenses are in fact tax-deductible.
Why do you need to track expenses?
You likely already generate financial statements and have a bookkeeping system for your eCommerce business. So why do you need to create expense reports?
Expense reports make it easy to track your team’s expenses, which helps you:
- Reimburse employees for businesses expenses they made with their own money
- Ensure requests for reimbursement are valid and accurate business expenses
- Track your expenses over time
- Categorize your expenses so you can evaluate what your business is spending money on and how much
- Prepare your taxes, including identifying and tracking deductible expenses
- Provide proof that expenses are tax-deductible
How often should you track expenses?
Tracking your team’s expenses regularly is a good habit that allows you to stay on top of your transactions and ensure your company spends money wisely.
Many companies set up internal processes to ensure team members fill out their expense reports on a monthly basis.
Monthly expense reports help you monitor all purchases your business made in that month. You can evaluate the amount being spent, whether these are essential to your business, and if you’re staying within your monthly budget. If you’re having financial difficulties, this approach can help you quickly identify any costs that you can eliminate to save money or increase your profits.
Save time tracking your team’s expenses with Bean Ninjas
Many eCommerce entrepreneurs – especially when they are first starting out – opt to DIY their team’s expense reports (and associated tracking) through an Excel or Google Spreadsheet. Many use a free template that they found online (There are dozens!).
While you might save a little money DIYing your expense tracking, this can be a massive time suck, introduce human errors, and create a headache at tax time.
A better solution – especially once your eCommerce business is doing six figures in sales – is to use cloud accounting software, like Xero, sync it with an expense tracking app – like HubDoc or Expensify, and then outsource all expense tracking to an eCommerce accounting firm.
Some of the benefits of using a third-party eCommerce accounting firm include:
- Your chart of accounts is updated weekly (or at least monthly)
- Your team’s expenses are categorized correctly
- Save money and time at tax time
- Be able to make business decisions with the most up-to-date financial data
In sum, an expense report helps you track and deduct business expenses. Reviewing your expenses regularly can help ensure your spending money on what your business needs, make it easy to reimburse employees, and help you identify tax deductions. You’ll also have a better understanding of your business’s spending.
Want to improve your cash flow and get more confident with your numbers? Learn how to use Xero effectively for your e-commerce business with our free Xero toolkit. This includes our step-by-step guide to getting your Xero file in order, a Cashflow Forecast Template, and a Bookkeeping timetable template to help you stay on top of your finances & get current reporting.