Expense Report: What is it and Why is it Important?

An expense report is more than just paperwork—it’s a critical financial document that helps businesses track spending, reimburse employees, and stay compliant with tax regulations. Whether it’s a simple spreadsheet, a printable PDF, or an automated digital form, they organize costs like travel, meals, mileage, and office supplies into one easy-to-review document.

In this guide, we’ll explain what an expense report is, why it’s important for small businesses, and how to create one manually or with automation tools to save time and reduce errors.

Need an easy way to manage business finances? Try Invoice Fly’s Invoicing Software or Invoice Maker — they’re free to get started!

What is an expense report?

An expense report is a formal document that itemizes and categorizes business-related expenses incurred by employees or business owners. These reports serve as official records for:

• Employee reimbursement
• Tax deductions
• Financial tracking and compliance

According to Fyle, a typical expense report contains categorized lists of expenses including utilities, office supplies, business trip expenses, printing costs, software subscriptions, maintenance and repairs, and other business-related costs.

This information helps businesses maintain accurate financial records while ensuring employees receive proper reimbursement for legitimate business expenses.

Tip: Consistently keeping records makes it easier to prepare reports that comply with IRS guidelines.

How To Fill Out An Expense Report?

Creating an accurate expense report requires attention to detail and proper documentation. Here’s what every expense report should include:

Pro tip: If your company uses an employee reimbursement form, make sure the employee’s name, department, payee details, and approval signatures line up with the expense report to avoid payout delays.

Modern tools like Concur or automated expense report software can reduce manual errors with receipt scanning and auto-fill features.

Why Do Businesses Need Expense Reports?

Expense reports help companies in five key ways:

1. Financial Control & Visibility – Track where money is going across departments and projects.
2. Tax Compliance – The IRS requires businesses to maintain clear documentation for deductions. See IRS Publication 463 for details.
3. Employee Reimbursement – Employees are reimbursed fairly when they spend their own money on business needs.
4. Budget Management – Compare spending against budgets to prevent overspending.
5. Audit Trail – Detailed reports with receipts provide a clear compliance trail.

Efficient Expense Tracking Over The Reporting Period

Effective expense tracking requires consistent processes and clear categorization. Businesses should establish regular reporting periods—whether weekly, monthly, or quarterly—to maintain accurate financial records.

Businesses benefit from consistent expense tracking:

• Monthly Expense Reports – Provide regular visibility without overwhelming employees. Many teams prefer a monthly expense report spreadsheet so each employee submits the same Excel format every month, creating a consistent audit trail for finance.
• Department-Specific Tracking – Helps large companies allocate costs correctly.
• Project-Based Reporting – Ensures accurate client billing and profitability tracking.

Regular expense tracking also helps identify trends and anomalies that might indicate policy violations, fraud, or simply inefficient spending practices that need addressing.

Budget Like A Pro

Expense reports provide the data foundation for effective budgeting and financial planning. By analyzing historical expense data, businesses can create more accurate budgets and identify areas for potential savings.

• Identifying Spending Patterns  – Review expense reports to understand seasonal variations, recurring costs, and unexpected expenses that should be factored into future budgets.
• Vendor Analysis – Track spending by vendor to negotiate better rates, consolidate purchases, or identify opportunities for bulk discounts.
• Cost Center Allocation –  Use expense report data to accurately allocate costs to different departments, projects, or profit centers for better financial management.

This data is also useful when calculating bad debt expenses and preparing financial statements like the balance sheet or profit & loss statement.

Stay Tax Ready, Always

Expense reports help businesses prepare for tax season:

• The $75 Rule: The IRS requires receipts for any business expense over $75.
• Deductible Categories: Travel, meals (50%), office supplies, professional development, and vehicle expenses.
• Documentation: Reports must show the amount, date, business purpose, and income connection.

If you claim a home office deduction, check out Invoice Fly’s tax guide for 2025.

[File Name: mileage-expense-tracking-sheet.png

Alt Text: Mileage expense tracking sheet for employees

Caption/Title: Example of a Business Mileage Tracking Sheet for Small Business Employees]

Expense Report Examples

Understanding different types of expense reports helps businesses choose the right format for their needs.

Simple Expense Report

A basic expense report works well for businesses with straightforward expense needs. It typically includes:

• Date of expense
• Description of purchase or service
• Amount spent
• Business purpose
• Category (travel, supplies, meals, etc.)

This format works well for small businesses, freelancers, or employees with occasional business expenses.

Business Travel Expense Report

A business travel expense report covers airfare, hotels, meals, mileage, and incidentals, and should include receipts or per diem details to meet policy and tax requirements.

• Transportation costs (flights, trains, car rentals)
• Accommodation expenses
• Meal costs (with per diem calculations if applicable)
• Mileage for personal vehicle use
• Incidental expenses (tips, parking, etc.)

Travel expense reports often require additional documentation like itineraries, hotel bills, and mileage logs.

Business Mileage Tracking Sheet

For employees who use personal vehicles for business, mileage tracking requires specific information:

• Date of travel
• Starting and ending locations
• Business purpose of trip
• Total miles driven (Use the current IRS standard mileage rate for 2025 for reimbursement.)
• Odometer readings (optional but recommended)

The Expense Reporting Process

Businesses can choose between manual tracking using templates and spreadsheets or automated solutions using specialized software.

Creating Expense Reports Manually

Manual reporting involves templates and spreadsheets. You can start with a free expense report template (Excel or PDF) to keep things simple and printable—then customize categories for your team. Adobe’s templates are a good starting point.

Manual Process Steps:

1. Download or create an expense report template
2. Fill in personal and business information
3. List expenses chronologically with all required details
4. Calculate subtotals and grand totals
5. Attach receipts and supporting documentation
6. Submit to manager for approval
7. Forward to finance team for processing

While this approach works for small businesses with minimal expenses, it’s prone to errors and time-consuming for larger organizations.

Automated Expense Reporting

Automated expense report software eliminates many manual tasks while improving accuracy and compliance. Modern solutions offer features like:

• Mobile Receipt Capture: Mobile apps allow employees to photograph receipts instantly, with OCR technology extracting key information automatically.
• Policy Enforcement: Automated systems can flag policy violations, duplicate expenses, and missing documentation before submission.
• Integration: Many platforms integrate with accounting software like QuickBooks automatically syncing expense data with financial records.
• Approval Workflows: Multi-level approval processes ensure proper oversight while speeding up the reimbursement process.
• Real-time Reporting: Managers can view spending patterns and budget status in real-time rather than waiting for monthly reports.

With automated expense report software, finance teams cut manual entry, tighten policy controls, and reimburse employees faster.

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Alt Text: Automated expense reporting dashboard for small businesses

Caption/Title: Example of an Automated Expense Report Software Used for Expense Management]

5 steps to create an expense report

Here’s a side-by-side look at manual vs automated expense reporting:

Tip! Use Invoice Fly’s Receipt Scanner or the Free Receipt Generator to streamline documentation.

Final Thoughts

Expense reports are essential tools for maintaining financial control, ensuring tax compliance, and supporting employee reimbursement processes. Whether your business uses manual templates or automated software, the key is consistency, accuracy, and proper documentation.

For small businesses, start with simple templates and establish clear policies. As you grow, consider automated tools for speed and accuracy. Pair expense tracking with tools like the Sales Tax Calculator for accurate tax handling.

Ready to streamline your business’s financial management?

• Try Invoice Fly’s Invoicing Software for an all-in-one solution.
• Or start simple with Invoice Maker — free to use!