Tracking expenses is a critical part of managing any business, whether you're running a small startup or a mid-size operation. For Canadian businesses, expense reports offer a straightforward way to keep track of every dollar spent on business-related activities.

But what exactly is an expense report, and why is it so important?

In this guide, we’ll break it down, showing you how an expense report works, what to include, and why it’s a must-have tool for efficient financial management.

Table of contents

1. What is an expense report?
2. Types of expense reports
3. Why do businesses need expense reports?
4. What information is included in an expense report?
5. How to track GST/HST and sales taxes on an expense report
6. Expense report example
7. How to create an expense report
8. Business expense categories in Canada
9. Best practices for managing expense reports
10. FAQ

What is an expense report?

An expense report is a document used to track and categorize all business-related expenses. Whether you're reimbursing employees for business costs or organizing your own expenses, these reports are an essential tool for keeping your finances in order. They allow business owners to document each transaction, categorize it, and ensure every dollar spent is properly accounted for.

Expense reports are commonly used for tracking operational costs like travel, meals, office supplies, and even marketing expenses. By submitting these reports regularly, you gain a clear understanding of where your business’s funds are going, which can help improve cash flow management and budgeting.

Employees use expense reports to document and request reimbursement for business-related expenses they’ve incurred while performing their job duties. This could include costs like travel, meals during client meetings, or the purchase of office supplies.

By submitting an expense report, employees provide their employers with a detailed account of these expenses, along with supporting documentation like receipts or invoices. This ensures that employees are fairly compensated for out-of-pocket expenses, while also helping the company maintain accurate financial records and stay compliant with tax regulations.

Types of expense reports

Businesses can use various types of expense reports, depending on their needs. Here are some common ones:

Employee reimbursement reports

These reports are used when employees need to be reimbursed for business-related expenses, such as travel, meals, or office supplies. Employees submit the report along with receipts to get compensated for out-of-pocket costs.

Travel expense reports

These reports focus specifically on costs incurred during business travel. They typically include expenses like flights, accommodations, meals, and transportation. Having a separate report for travel helps businesses track travel-related spending more easily.

Monthly or quarterly expense reports

Many businesses use recurring reports, such as monthly or quarterly reports, to track ongoing operational expenses. These reports help companies analyze spending trends over a set period, making it easier to budget and forecast future expenses.

Project-specific expense reports

For businesses running multiple projects, project-specific expense reports help track expenses related to a particular project or client. This is useful for businesses that need to allocate costs to different departments, clients, or contracts.

Why do businesses need expense reports?

Expense reports are more than just a way to track spending. They provide critical insights into your company’s financial health and can help you avoid common financial pitfalls, like overspending. For Canadian businesses, expense reports offer these key benefits:

• Improved cash flow management: By tracking expenses, you can monitor how much money is going out and adjust budgets accordingly.
• Accurate financial records: Proper documentation is key when it comes to filing tax returns or preparing financial statements.
• Employee reimbursement: Expense reports streamline the reimbursement process for employee-related business costs.
• Audit preparation: By maintaining detailed and accurate expense reports, you’ll be better prepared for any tax audits or compliance reviews that may occur.

What information is included in an expense report?

Most expense reports include several key pieces of information that help businesses keep accurate records of their spending.

Here’s a breakdown of the essential details you should include in your reports.

Typical items to include

• Date of transaction: The date when the expense was incurred.
• Category of expense: This could include travel, meals, office supplies, or advertising.
• Amount spent: The total cost of the expense, including taxes and tips, if applicable.
• Vendor information: The name of the business or individual that provided the service or product.
• Description: A brief description of the business purpose behind the expense.
• Receipt or invoice: Any relevant documentation to prove the expense, such as a receipt, invoice, or bill.

How to track GST/HST and sales taxes on an expense report

When preparing an expense report, it’s important to account for GST/HST and other sales taxes separately from the base expense. Businesses can track the tax amount paid on each expense to claim input tax credits (ITCs) when filing GST/HST returns.

On the expense report, the total cost of an item or service should be divided into the pre-tax amount and the tax paid, allowing for accurate reporting and easier tax reconciliation. This ensures that businesses can recover the GST/HST paid on eligible business expenses, reducing their overall tax liability.

Expense report example

Here's an example of a typical expense report:

• Each entry contains the date, category, description, amount, and receipt status. This makes it easy to reimburse employees and stay organized for tax season.

How to create an expense report

Creating an expense report doesn’t have to be complicated. Whether you’re using a simple spreadsheet or an expense management tool like QuickBooks, here’s a quick step-by-step guide on how to create one:

1. Use a template: QuickBooks and many other platforms offer downloadable templates, which you can customize based on your business’s needs.
2. Input your expenses: For each expense, record the date, amount, category, vendor, and purpose.
3. Attach receipts: Include any relevant documentation, such as receipts, invoices, or bills, to validate the expense.
4. Categorize: Make sure every expense falls into the appropriate category (for example, travel, office supplies, meals).
5. Review and submit: Once all expenses are logged, review the report for accuracy and submit it for approval, if needed.

Business expense categories in Canada

In Canada, proper categorization of expenses is essential for financial reporting and tax purposes. The Canada Revenue Agency (CRA) outlines several key expense categories that businesses should be aware of.

Here are some of the most common:

• Travel and accommodation: Includes flights, hotels, and transportation for business purposes.
• Meals and entertainment: Business-related meals and client entertainment costs (note that typically, only 50% is deductible for tax purposes).
• Office supplies and equipment: Includes items like printers, paper, and other office essentials.
• Vehicle expenses: For businesses using vehicles for operations, this includes fuel, maintenance, and insurance costs.
• Utilities and internet: Business phone lines, electricity, and internet service fall under this category.
• Marketing and advertising: Costs for promotional activities, including digital marketing, print ads, and more.

Not only does proper expense categorization help with tax deductions, making sure you only claim what is allowed by the CRA, but it also plays a crucial role in preparing accurate financial statements. By organizing expenses into specific categories, such as travel, marketing, or office supplies, businesses can clearly see where money is being spent.

This level of detail makes it easier to prepare financial statements like income statements and balance sheets, ensuring that all expenses are correctly accounted for. Additionally, proper categorization helps in assessing profitability by showing which areas of the business are costing the most and which may need budget adjustments.

Best practices for managing expense reports

To ensure your expense reporting process runs smoothly, follow these best practices:

• Establish a clear submission schedule: Set a regular deadline for submitting expense reports (for example, monthly or quarterly).
• Use digital tools: Digital expense management tools like QuickBooks help automate the process and reduce the likelihood of errors.
• Verify business expenses: Ensure every expense is legitimate and related to business activities.
• Retain receipts and documentation: The CRA requires businesses to retain receipts for at least six years. Make sure all documentation is properly stored, either digitally or physically.

Following these practices will help you stay organized and prepared, especially when it comes time to file taxes or handle an audit.

Managing expenses doesn’t have to be a headache. By using organized and detailed expense reports, your business can better track its spending and stay compliant with Canadian tax laws. Whether you are a solopreneur or running a mid-sized company, an effective expense reporting system is key to maintaining financial health.

Explore how QuickBooks’ suite of business tools can help streamline your expense tracking and financial management.