What is an expense report? (Guide + template)

For small businesses and startups, efficient expense management is key to sustainable growth. In fact, 29% of business owners are looking to reduce expenses, according to the QuickBooks Entrepreneurship in 2025 report. 

Accurately tracking expenses helps businesses monitor their cash flow, identify areas for cost savings, and make informed financial decisions that support their long-term goals. 

In this guide, we'll explain what expense reports are, why they're important, and how to create them effectively. We'll even provide you with a free template to get you started. 

Understanding expense reports

Expense reports encompass more than just a list of costs. They offer a structured breakdown of business-related spending, often categorized for clearer analysis. 

Different types of expense reports cater to specific needs, including:

• Travel expenses: Flights, accommodation, meals, mileage
• Project-related expenses: Materials, contractor fees, software
• Client entertainment expenses: Meals, events, gifts
• General operating expenses: Office supplies, subscriptions, training

Employees who incur business expenses, such as sales representatives, project managers, consultants, and executives, typically prepare expense reports. 

These reports are then submitted to a designated department or individual for review, approval, and reimbursement. This process ensures financial accountability and facilitates accurate record-keeping for the company.

What is included in an expense report?

Accurate and well-documented expense reports are essential for maintaining financial clarity and ensuring compliance with IRS regulations. 

While specific requirements may vary based on the nature of the expense, most expense reports share fundamental elements designed to facilitate processing and provide a clear audit trail. 

These essential elements and their functions include:

• Date: Records when the expense occurred, crucial for chronological tracking, budget allocation, and IRS record-keeping requirements
• Description: Briefly explains the nature of the expense, providing context for the expenditure and aiding in IRS substantiation
• Category: Classifies the expense (e.g., meals, travel, supplies), enabling analysis of spending patterns and ensuring proper tax deduction categorization
• Amount: States the size of the expense, which is essential for reimbursement, financial record-keeping, and accurate tax reporting
• Seller/vendor: Identifies where the expense was incurred, which is useful for verification, tax purposes, and IRS audit trails
• Purpose/business reason: Explains why the expense was necessary for business operations, justifying the expenditure and providing IRS-required business purpose documentation.
• Method of payment: Indicates how the expense was paid (e.g., cash, credit card), aiding in reconciliation and IRS payment tracking.
• Receipts/supporting documentation: Provides proof of the expense for auditing, reimbursement, and meeting IRS substantiation requirements.

A complete and accurate expense report ensures transparency, facilitates timely reimbursement, supports sound financial management within an organization, and maintains compliance with IRS regulations. 

Including these details will ensure that expense reports remain valuable tools for employees and the company.

Who handles expense reports?

Keeping track of expenses is a team effort. While it might seem like just another task on your to-do list, expense reports are a key part of how businesses stay organized and make smart money decisions.

Here's a breakdown of who the expense reporting process involves:

• Employees: Anyone who incurs business-related expenses, from entry-level staff to executives, is responsible for submitting expense reports. This includes itemizing purchases, providing supporting documentation, and explaining the business purpose of each expense.
• Administrative staff: In some cases, administrative staff may assist with compiling expense information, ensuring accuracy, and submitting reports on behalf of employees.
• Accountants: Accountants play a crucial role in overseeing the expense management system. They review reports for accuracy and compliance with company policies and tax regulations and ensure proper integration into the company's accounting system. They also play a key role in processing reimbursements.

Accounting software, like QuickBooks Online, can significantly streamline this process. It automates tasks such as data entry and receipt capture, reducing the risk of errors and freeing up accountants to focus on higher-level responsibilities like analysis and financial planning.

What expenses go into an expense report? 

​​Understanding the types of expenses that can be included in a report is crucial for accurate tracking and budgeting. Expenses generally fall into one of three categories: 

• One-time: These are infrequent expenses, such as a conference registration fee or new equipment. 
• Recurring: These expenses occur regularly, like monthly subscriptions or office rent. 
• Long-term: These are expenses related to assets with a lifespan of more than one year, such as the purchase of a company vehicle. 

Categorizing expenses in this manner helps businesses understand their spending patterns, forecast future costs, and make informed financial decisions. Properly classifying expenses ensures accurate reporting and facilitates effective budget management.

How to create an expense report

Setting up a clear and efficient expense reporting process is crucial for managing your business finances effectively. It ensures accurate record-keeping, simplifies reimbursements, and helps you gain valuable insights into your company's spending. 

Here's a step-by-step guide to creating an expense reporting system for your small business:

Step one: Create your spreadsheet 

Start by creating a blank canvas for your expense information. Open your spreadsheet program and create a new document. Give your spreadsheet a clear title, like "Expense Report - [Month, Year]." 

Next, you'll want to add the necessary headers to organize your expense data effectively. In the first row, create headers for the key information you'll be tracking. This typically includes:

• Date
• Description
• Category
• Vendor/seller
• Amount
• Payment method
• Purpose/business reason

Adjust column widths as needed to accommodate the data, and consider adding formatting like bolding the headers for clarity.

Step two: Build out your spreadsheet 

With your spreadsheet framework ready, it's time to input the specifics of each expense. For each expense you incur, create a new row in your spreadsheet. 

Be sure to record the following information for each expense:

• Date
• Description
• Category
• Vendor/seller
• Amount
• Payment method
• Purpose/business reason
• Proof of payment

To make your life easier, consider using formulas to calculate totals and subtotals. For example, you could use the SUM function to automatically calculate the total expenses for a specific category or time period. This can help you track expenses, manage your budget effectively, and avoid manual calculation errors. 

You can also use a separate column to add any relevant notes or comments about specific expenses. This can provide additional context or clarification.

Step three: Organize and categorize your expenses

To make your expense report more insightful, take some time to organize and categorize your expenses. This will help you identify trends, spot potential savings, and prepare for key tax dates.

Use the sorting function to group similar expenses together, like food-related or travel expenses.

Some common expense categories to help you get started:

• Travel: This could include airfare, train tickets, mileage, tolls, parking, and public transportation
• Accommodation: Hotel bills, Airbnb rentals, etc.
• Meals: Restaurant bills, groceries for business trips, coffee with clients
• Entertainment: Client dinners, tickets to events, etc.
• Office supplies: Stationery, printer ink, paper, etc.
• Subscriptions: Software subscriptions, online services, etc.
• Training & education: Conference fees, online courses, workshops
• Marketing & advertising: Social media ads, print advertising, etc.
• Professional services: Fees for lawyers, accountants, consultants

With your expenses organized, you're ready for the final review before submission.

Step four: Finalize and review your expense report 

Before submitting your expense report, take some time to review and ensure everything is in order. Accuracy and completeness are key to a smooth reimbursement process.

• Carefully review all entries for accuracy and completeness. Ensure that all necessary information is included and that any calculations are correct.
• If your company requires it, attach digital copies of your receipts to the spreadsheet or maintain a separate folder for physical receipts. Generally, the IRS requires receipts for expenses of $75 or more. 
• Save your spreadsheet in a secure location and submit it to the appropriate approver or department according to your company's guidelines.

With your polished and finalized expense report, you're ready for submission and reimbursement. But if you're looking for a more streamlined and visually appealing way to present your expenses, consider using an expense report template.

Expense report template 

While spreadsheets offer flexibility, using a pre-designed expense report template can further streamline the process and ensure consistency. 

Templates provide a structured format with designated fields for all the essential information, making it easier for employees to fill in their expenses accurately and for approvers to review them efficiently. They also often include built-in formulas for calculations, reducing the risk of errors.

Benefits of expense reporting for small businesses

Companies need expense reporting to maintain accurate bookkeeping, control costs, and ensure compliance with tax regulations. It's a critical process for tracking employee spending, reimbursing expenses, and gaining valuable insights into business expenditures.

One of the primary benefits of expense reporting is improved financial control and record-keeping. With proper expense reports, businesses can easily categorize expenses, track payment methods, and provide supporting documentation like receipts. 

All of these help businesses claim deductions and avoid penalties during tax audits.

Furthermore, expense reporting plays a vital role in cost management and data-driven decision-making. Analyzing spending patterns will help identify areas where costs can be optimized, leading to better budget management and potentially reduced tax liability. 

Expense reporting also contributes to employee satisfaction and fraud prevention. Timely and accurate reimbursement of employee expenses fosters a positive work environment and ensures that employees are not unfairly burdened with out-of-pocket costs. 

Additionally, the documentation and approval processes associated with expense reporting help detect and prevent fraudulent expense claims, protecting the company from financial losses and potential tax liabilities.

Streamline your accounting and save time

While expense reports are crucial for managing business finances, the manual process can be time-consuming and prone to errors. Fortunately, expense tracking software like QuickBooks Online offers a more efficient and accurate solution.

QuickBooks Online simplifies expense management by automating tasks such as receipt capture and data entry. This helps save valuable time,  ensures greater accuracy, and provides insightful reporting features.

If you're looking to streamline your expense tracking and gain better control over your business finances, explore how QuickBooks Online can help.