What is an expense report? A complete guide

An expense report is an itemized document listing an employee’s business-related purchases. Employees submit the reports to their manager or a finance team member, who review purchases and approve compliant business expenses for reimbursement.

Employees often need to make job-related purchases—like office supplies, meals with an important client, or flights to and from an offsite. When they pay for these expenses out of their own pockets, they typically file a claim—known as an expense report—to their employer, who reviews the charges and, if legitimate, pays the money back.

But how can companies streamline the expense management process to ensure timely, accurate, and well-recorded reimbursements compliant with internal spend policies? This guide has you covered. 

What is an expense report?

An expense report is an itemized document listing an employee’s business-related purchases. Employees submit the reports to their manager or the finance or accounting team, who review purchases and approve compliant business expenses for reimbursement.

Expense reports allow companies to reimburse employees whenever they make professional purchases (i.e., expenses incurred on behalf of their employer) with personal funds. They also help businesses file tax returns, qualify for deductions, and undergo internal or external audits.

While the exact categories depend on a company’s internal spend policies, common reimbursable expenses include business-related:

• Office supplies
• Vendor subscriptions
• Flights
• Hotels
• Car rentals
• Meals
• Gas

Why do companies need expense reporting?

Expense reports help companies reimburse employees, track business-related transactions, balance their books, and control company spend. Learn more about the biggest benefits below. 

Improved financial transparency

When employees file expense reports, companies can track how much individual workers and departments spend across different vendor categories, helping them control costs. The reports are also an opportunity for employers to check whether submitted expenses comply with spend policies and follow up with employees if they spot any discrepancies. 

Expense reports also streamline the reconciliation process by helping accounting teams review and record transactions in their company’s general ledger.   

Accurate reimbursement

When employees dip into personal funds to make purchases on behalf of their employer, companies should strive to pay them back quickly and accurately. Expense reports allow employees to itemize transactions, explain why they made each purchase, and include receipts for record-keeping. This helps companies review, approve, and fully reimburse compliant purchases within every reporting period. 

And if finance teams or supervisors catch out-of-policy expense report submissions, they can reimburse legitimate business purchases without paying for any non-compliant transactions.

Better budgeting

Expense reports give finance teams real-time visibility over different employees’ purchasing patterns, helping them set realistic budgets for different projects and departments and modify them whenever necessary. 

Keep in mind: when employee spend is consolidated among the rest of your company’s finances, businesses have an easier time setting budgets and forecasting a company’s future needs. 

Record tax-deductible expenses

Employee-made business expenses are often tax deductible. But for businesses to claim these deductions, they need recorded proof of the relevant transactions. While finance teams can track down receipts and bank account statements, expense reports batch together deductible expenses, making them easier to write off come tax season. 

What to include in an expense report

Expense reports can be either physical or digital documents and typically include the following: 

• Employee name: Who incurred the expense
• Date: When the transaction happened
• Vendor: Where the purchase came from
• Reference number: How finance teams can map the expense to specific projects or departments
• Notes: Why the employee made the purchase
• Amount: The full cost of the expense

The “notes” section can take different forms, but employers should encourage employees to explain their reason for making the purchase, specifying other relevant details and why it was a necessary or important business expense. 

Employees also typically include receipts corresponding to every expense report submission, which managers and finance teams review to see whether the totals match. 

Expense reporting process: Manual or automated?

Companies have two main options for processing expense reimbursements.

Manual expense reporting

For this conventional expense reporting process, employees manually log all their expenses in employer-distributed forms, which can be on paper or in digital tools like spreadsheets. Employees also have to manually calculate subtotals to make sure numbers add up and map every expense to the right category to make the finance team’s approval and reconciliation process easier. 

In this manual process, employees have to keep track of their paper receipts to include alongside the expense report. And finance teams have to record every transaction from every employee to tie the books out. 

While manual expense reporting can reliably reimburse employees and monitor company spend, it drains time and is susceptible to errors. 

Automated expense reporting

In lieu of a drawn-out, manual reimbursement system, you can automate the most cumbersome parts of expense management with software. Such platforms streamline every step of the process and encourage compliant spending, prompt repayment, and up-to-date bookkeeping. 

Expense management software allows employees to electronically submit expense reports, quickly upload paper receipts, and forward emails of e-receipts to automatically match charges. And when admins review transactions, standout solutions can automatically flag duplicate purchases and receipt mismatches to reduce accounting errors. All the time saved means employees get reimbursed quicker. And finance teams can keep costs in check by building workflows that send automatic alerts when spending grows or employees try to make out-of-policy transactions. 

What’s more, instead of chasing down department heads to greenlight reimbursements, automated expense management solutions allow administrators to configure expense approval workflows that ensure the right managers oversee the right transactions. 

Automate your expense reporting with Rippling

Expense management software can save time for everyone involved in the reimbursement process, ensure employers pay employees back accurately, and monitor compliance with internal spend policies. 

Rippling, for instance, automates the most time-consuming aspects of the expense management process, giving finance teams unprecedented control over employee spend. 

With Rippling, you can: 

• Automatically flag out-of-policy spend: Instead of spending hours manually checking policy compliance on every reimbursement request, Rippling lets you build automated workflows that catch unauthorized claims on your behalf.
• Build customizable approval chains: While most systems make you manually assign approvers to every company policy, Rippling lets you build granular, role-based approval chains synced to your org chart. 
• Sync expenses to your general ledger: Rippling auto-categorizes expenses to your general ledger in real-time, saving bookkeepers hours of work manually logging transactions from different vendors to the right expense categories and reconciling them at the end of reporting periods.

Frequently asked questions

Are expense reports mandatory?

The federal Fair Labor Standards Act (FLSA) doesn’t legally require companies to reimburse employees for business-related expenses—unless the expenses bring earnings below the federal minimum wage. 

Some state employment laws, however, may mandate expense reimbursement. The California Labor Code, for instance, states that employees are entitled to reimbursements for expenses incurred on the job.  

And while not always legally mandatory, it’s common practice to pay employees back whenever they make a purchase they need to make for their job. Employers should create a reimbursement policy and distribute it to employees before they make any business purchases or file expense reports. 

How should expenses be reported?

Expense reports should include the submitter’s name, the date of the purchase, the vendor, the total amount, and details explaining the reason for the expense, which may reference a relevant project or client. 

What is the difference between an invoice and an expense report?

Businesses (or sole proprietors) send invoices to clients outlining goods and services provided and requesting payment of a specified dollar amount. Meanwhile, employees send expense reports to their employer requesting reimbursement for business-related purchases. 

While invoices and expense reports contain similar information, the former is submitted by business entities for unpaid wages, the latter is submitted by employees requesting a refund for money they already paid. 

What are common examples of Travel and Expenses (T&E)

Companies often reimburse employees for T&E, which typically refers to travel expenses made for business purchases. This can include:

• Flights
• Hotel bookings
• Car rentals
• Meals
• Entertainment experiences for clients (like a concert)
• Parking fees

To ensure employees are only expensing necessary business travel costs, you can leverage expense management software to both create and enforce a T&E policy. 

And with Rippling Spend, you can track expense management alongside the rest of your company’s finances—vendor bills, payroll, and corporate card charges—allowing businesses to create tailor-made reports, approval chains, and policy enforcements from a single, intuitive platform. 

This blog is based on information available to Rippling as of July 12th, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.