Expense Report Everything To Know For Successful Business

Being in business is all about making a profit. But profit isn’t only about your sales numbers. Effectively controlling and minimizing expenses is just as important as boosting sales to achieve the ultimate goal: generate maximum profit. 

Caught between limited financial resources and the pressure to maintain competitive pricing, small businesses these days need to stay more proactive than ever to stay on top of their expenses. One of the most commonly used practices for managing costs among small businesses is the expense report. 

In this article, we will go through some basic fundamentals of expense reporting. Once you fully understand the nature of an expense report, you’ll be able to make the most of it and improve your business’s productivity and internal control.

What is an expense report?

An expense report is a document filled out by an employee or a partner so they can be reimbursed for professional expenses. They are also used to track company spending.

Expense reports are generally presented as forms, whether in a paper or a digital format. The report can be prepared using accounting software or using a template in Word, Excel, PDF, and so on. 

With the advent of new technologies, several solutions now exist to automate the expense management process. The purpose of these solutions is to free time up for everyone involved in the process, streamline expense reports management, and increase profit. 

What is an expense report used for?

Making reimbursements 

Small businesses sometimes require employees to pay for work-related expenses such as transportation out of their own pocket, which will later be reimbursed by the business owner. This process is documented in an expense report with 3 simple steps: 

  1. The employee lists all the business-related spending such as transportation-related costs, accommodation, or meals in an expense report. Receipts should be attached to the document.  
  2. The employer checks the expense report for accuracy and validity. 
  3. The requested amount is paid back to the employee.

Sometimes, the process can be reversed in which the companies make advance payments to staff. The employee still needs to submit an expense report to detail expenditures. However, there won’t be any reimbursement. Instead, the employer will just deduct the expenses from their advances and have these transactions recorded in the bookkeeping system. 

Tracking expenses

An expense report is also a great tool to help small businesses keep track of their spending periodically (on a monthly, quarterly, or yearly basis). By reviewing expense reports, companies can examine their financial health, determine if they’re spending over or under budget, then analyze the causes and devise immediate solutions to improve expense management. 

Shoeboxed expense report

Filing tax

Regardless of what type of business you run, filing a tax return can be a real headache. Businesses are always searching for ways to minimize their taxable amounts.

Many business expenses are deductible and can be subtracted from a company’s income before it is subject to taxation. Expense reports are the legal documents to prove just that. Creating an expense report allows you to monitor deductible costs that may not yet be shown on your company bank account, making it a lot easier to write such expenses off at tax time.

Auditing purposes 

Expense reports are valuable evidence for both internal and external audit activities. Unnecessary and fraudulent reimbursement claims are not, unfortunately, an uncommon theme in many workplaces. These reports can help with business audits by providing visibility into what funds are coming in and out of the business. By properly processing these expense reports, owners can examine the details and audit their current businesses’ financial and managerial health. 

As we’ve just mentioned above as well, expense reports are vital for deducting tax. They can be requested for submission as supplemental documents, in addition to reporting total applicable costs on tax forms when submitting taxes with the revenue service at any time. 

What does an expense report look like?

Small businesses usually create expense reports using templates in Word, Excel, PDF, etc, or have them automatically prepared by accounting software. No matter how an expense report is made, it typically should contain these elements: 

  • Employee’s information: name, department, position, their manager, or details of who submits the expense
  • Date: when expenditure was incurred (a receipt showing the same date should be attached)
  • Vendor: where a product or service was purchased
  • Description: the nature of the expense such as taxi fee, meal, or hotel
  • Account: where the expense should be charged to 
  • Amount: the total sum of the expense (this amount should also be on the provided receipt) 
  • Subtotal: the amount for each type of expense listed 
  • Subtraction: adjustments when there are any prior advances paid to the employee
  • The grand total: the final amount of reimbursement requested
  • Note: an extra explanation for any unidentified or unclear type of expenses. 

Sometimes, an expense report may also include a brief summary of the company’s policy regarding which kinds of expenses are not reimbursable. It’s a good way to remind employees before they submit their expenses, saving time for employers and also raising awareness of spending policies within the business. 

An expense report may look different among small companies, depending on the nature of its business as well as each company’s own preference. However, it should always tell you how much the expense is and what it was used for. 

Business expense categories 

One of the most important functions of using expense reports is to help small businesses collect data and categorize business expenses, many of which can be written off in a company’s taxes. Some of the most common expense categories include utilities, travel, office supplies, and rental expenses, but there are many more that small businesses, freelancers, and sole proprietors should pay attention to. 

According to the IRS, as long as an expense is “ordinary and necessary” to running a business in your industry, it’s deductible. That’s why we suggest you should follow the categories listed in the Schedule C form  from the IRS for your expense report if you run a sole proprietorship. Developing categories that match your business and a tax return file can make the tax filing process easier, smoother, save you time, and make sure you get all the deductions that you can.  

We’ve listed below 10 most common business tax expenses that you can deduct with brief explanations of what’s covered, what’s allowed, and what’s not.

Advertising

You can fully deduct expenses related to promoting your business, including digital and print advertising, social media advertising, website design and maintenance, and the cost of printing business cards.

Business insurance and professional service

You can deduct the cost of your business insurance on your tax return such as business liability or workers compensation. Fees paid to an attorney, designer, architect, or other professionals directly related to operating your business are also tax-deductible.

Office supplies

You can write off office supplies including stationery, office cleaning service, drinks and snacks in the break room, and work-related software. Shipping and postage charges may also be deducted. Bear in mind that you may only deduct the cost of materials used in the current year.

Home office expenses

If you’re a small business owner working from home, don’t miss out on this deduction! Generally, you’d need a space that is regularly and exclusively used for businesses to be qualified for deduction. You can deduct $5 for every square foot of your home office which meets all the requirements, up to a maximum of 300 square feet.

Travel expenses

First and foremost, before you try to write off your travel expenses, ensure that the purpose of your trip. Here are 3 rules to help you determine whether your trip is qualified or not:

  • The trip must be primarily business-related.
  • The trip must take you away from your tax home, i.e. outside the city or area where your company is located.
  • As well as being away from your tax home, it must be substantially longer than a normal day’s work and require you to sleep or rest prior to returning home.

Business interest

A business interest expense is the cost of interest on business loans required to keep operations running. Your deduction is generally limited to 30% of adjusted taxable income but it was raised to 50% in 2020 due to the pandemic. However, this limitation does not apply to small businesses (with average annual gross receipts of $25 million or less over a trailing three-year period), farms, or real estate investment enterprises.

Cell phone and internet bills 

You can deduct your entire bill if you have a dedicated business cell phone or Internet connection. It’ll be a little bit more complicated if you mix business with personal usage. In this case, you will need to calculate and deduct only the percentage used for work. 

Wages and benefits

If you run a small business and hire people, you may deduct their wages, benefits, and vacation expenses. However, don’t include your own wages because they’re not allowed to be deducted by the IRS. 

Donations 

Tax-deductible donations must meet certain criteria. For example, the receiving organization must be a qualified institution. Recognized institutions may include, but are not limited to, religious organizations, nonprofit educational agencies, museums, and local volunteer groups. There are different guidelines depending on the nature of your donations such as cash, food, and clothing.

Depreciation

When you deduct depreciation, you’re usually writing off the cost of a tangible asset like a vehicle or machinery over the useful lifetime of that item, rather than deducting it all in one go for a single tax year. It’s best to deduct depreciation for costly long-term business investments, so you’re reimbursed for the expense over the entire lifetime of use of the item. 

Medical expenses

You can claim insurance premiums; and if you’re self-employed and pay for your own health insurance, you can deduct your health and dental care insurance premiums. You can also claim medical care expenses, including doctor’s fees, prescription drugs, and home care.

By designing your expense report template based on Schedule C, you’ll find it much quicker and easier when inserting data into tax forms.

So get organized and save time and money!

What is a monthly expense report? 

A monthly expense report details company outlays paid over the course of a given month. These reports are not typically used for employee reimbursement, but rather to track company or department spending, allocate expenses to specific projects or clients and compare expenses to revenue to determine a company’s overall profitability. These reports are typically organized by category, or payee, and can be tremendously helpful for companies to coordinate planning, budgeting, and resourcing requirements. In times of financial difficulty, a monthly expense report can be used to check how costs can be cut or eliminated to improve profit. 

What is considered an expense? 

Not all costs are expenses. An expense is the cost of operations that a business incurs to generate revenue. It can be salary compensations for employees, train tickets fees, or office rent payments. The summary of all expenses is shown on Income Statements (Profit or Loss Statement) as deductions from the total revenue.

While businesses can write off many kinds of expenses, they are not allowed to claim their personal, non-business expenses as business deductions. They also cannot claim bribes, lobbying costs, penalties, fines, and contributions made to political parties or candidates. 

It’s also very common for businesses to make the mistake of writing off“capital expenditure” as an expense. Capital expenditure (CapEx) is used to acquire, upgrade, and maintain tangible assets such as property, buildings, or equipment. Businesses must capitalize those expenses or write them off slowly over time as depreciation. For example, if you acquire a new oven for your bakery business, the oven should be capitalized and recorded as your asset, instead of a business expense. Identifying the nature of an expense will help you do your taxes properly and precisely. 

Essentially, companies should have strict rules regarding what can be considered a business expense. Employees should be informed thoroughly as well before submitting expense reports for reimbursement. 

Conclusion 

Expense reporting and analysis is an indispensable element of an effective cost management process. However, many small businesses struggle with keeping track of documents and receipts manually which ends up being time-consuming and unproductive.

Clear away that pile of documents and go paperless with Shoeboxed!

Shoeboxed creates clear and comprehensive expense reports that include images of your receipts. In just a few clicks, you can export, share or print the information you need for easy tax preparation or reimbursement.

Bookkeeping For Cannabis Industry Must-knows 4 Proven Best Practices

The US Cannabis Industry

Due to its illegal status at the federal level and as the business is growing fast with a variety of emerging sub-industries, Cannabis companies are facing ever more complex issues that are unique to the industry and require their operators to be extra careful when it comes to keeping their books accurate and organized. Hence, bookkeeping for Cannabis industry best practices is proven to be necessary for businesses in the field.

Let’s go through everything must-knows and best practices about bookkeeping for Cannabis industry in this article!

Banking

Not many federal-regulated financial institutions welcome those who run their business in cannabis as it is still classified as an illegal drug in many states, thus making its risky and problematic reputation. Apparently, the lack of banking options from the beginning subjects cannabis businesses to multiple issues, including internal and external theft, misallocation of funds, payroll, and insurance paid in cash.

It is not totally hopeless to find a bank that can work with your cannabis business though if you are willing to go through complicated application procedures in which regular financial statements must be handed in for reviews. The banks often do this quarterly, but monthly financial records should be ready at any time for submission since it is likely that they will be investigated to support what is reported. The banks will also pay attention to fluctuations in your report, and you don’t want your account to be shut down because you can’t account for such inconsistencies!

Cash flow control

Needless to say, it is challenging to manage cash-only businesses, and those trading in cannabis are no exception. Without a proper tracking system in place, tracking cash transactions by transaction can become a mess. In this case of cannabis – a federally controlled substance, every piece of inventory matters, so any suspected activity may cost the companies their precious licenses or even lead to criminal charges against concerned individuals.

Anti-money laundering

To prevent money laundering, marijuana companies must meet strict requirements regarding accounting and keeping records of every activity and transaction during the course of business, “from seed to sales”, and from suppliers, distributors, retailers to customers. Moreover, for any transaction or a series of transactions that total $10,000 or more in cash, cannabis businesses have to prepare Form 8300 for tax purposes, the filing of which can be confusing with errors resulting in serious fines and audits. 

Taxes

According to Internal Revenue Code Section 280E, “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by federal law or the law of any state in which such trade or business is conducted.” In compliance with this, cannabis-related businesses follow strict limitations when reporting taxable income, with the cost of goods sold being the only deductible expense. Accounting processes, as a result, must implement complete record-keeping to ensure a compliant inventory environment.

Seed-to-sale tracking

 Cannabis business and accountants working in the industry do not often talk about seed-to-sale tracking with much enthusiasm. Every state has its own seed-to-sale system to monitor the production and distribution of Cannabis plants, causing a great deal of confusion for growers, distributors, and other stakeholders involved who need to adhere to changing rules of each local government. 

Specifically, depending on its preference, each state may require a different software system to trace and monitor the plants and finished products from inventory to the point of sale. The three popular seed-to-sale software, Biotrack, MJ Freeway, and METRC, however, tend to have unreliable reporting and it is also difficult to integrate them with existing accounting systems.

Bookkeeping for Cannabis Industry

Bookkeeping is fundamental to accounting, and with all the federal and state regulations that make accounting for cannabis extremely complex, anyone who deals with keeping the books must do it right. 

In particular, bookkeepers should know the ins and outs of Section 280E in the tax code because of its major implications on the business’s actual income and profit. Unlike those working for most small-to-medium-sized businesses, accountants and bookkeepers in Cannabis companies must get used to concepts such as cost accounting, accrual accounting, generally accepted accounting principles (GAAP), and absorption accounting. 

Since many of these principles are not required for everyday small business accounting, a generalist accountant may not be familiar with them. Finding a person with the necessary skill set to keep good records for your cannabis business, therefore, is important in several ways.

Getting ready

Whether outsourcing professional bookkeeping services or hiring an internal bookkeeper, cannabis businesses benefit greatly from having their books handled by people who have experience in the industry. It will be too late to get your accounting system set up and begin organizing your expenses months after the business starts operations. Money is spent on a daily basis, and without proper tracking of day-to-day expenditure and transactions, catch-ups of bookkeeping will turn into a nightmare with a higher tendency of errors. Even for pre-revenue companies, having a comprehensive bookkeeping system in place is essential at the beginning of their journey, when they need to know how much is spent on what before making the first profits.

Raising money

The key to keep a cash-intensive business like Cannabis companies up and running is said to lie in fundraising. Not to mention the difficulty of finding investors who understand the possible pitfalls of the industry, there are a host of components that accountants and bookkeepers can’t overlook if they would like to attract investors to their business. However, it all comes down to the basics such as providing organized books and accurate financial reports that show effective internal controls and accounting policies. There is no one who wants to entrust their money in incompetent hands, and for marijuana businesses that wish to access capital, it is expected that they can express their efficiency in financial management through good bookkeeping practices.

Taxes and deductibles

As mentioned above, under the regulation of IRC 280E, Cannabis companies cannot take deductions from business expenses such as rent, vehicle, and marketing like other companies because their business is related to a controlled substance. Despite this tax limitation, professional accountants can help to legally reduce taxable income by allocating costs to inventory and the cost of goods sold, which is mandated by IRC 471.  

Besides the reputable IRC 280E, there are other tax requirements that accurate bookkeeping can help cannabis businesses fulfill, thus maintaining their license while staying out of trouble with the IRS.

GST/HST and Provincial Sales Tax

Once a proper accounting system is set up with organized bookkeeping practices guaranteed, Cannabis companies can be at ease that they are paying the correct amount of sales tax they are supposed to. What’s more, based on the tax collected it will be easier for them to plan ahead, using the expected tax refunds for business operations. 

Excise duties

Exercise duties, applied at the time the cannabis product is delivered to a buyer, are compulsory for any cannabis licensee. Duties of each transaction must be kept track of, and the higher duty payable must also be reported. Those who own a business in the industry had better have a good grasp of what rules and regulations that the excise duty framework entails to know how to calculate duties or have a reliable accounting team to do this meticulous task for them. Plus, they should do it from early on too before all the transaction receipts pile up or go missing!

Bookkeeping for cannabis industry best practices

Knowing the rules

Whether it is for medical use or adult purchases, businesses associated with marijuana are restricted by countless written and unwritten rules, the sheer number of which may shun anyone wishing to be engaged in this space. Those who overcome the hurdles to take on the role of bookkeepers in Cannabis companies must be well aware that there is no room for ignorance here. Before things can be done “by the book”, first and foremost, bookkeepers must find out what “book” to read. Both federal and state laws have their own specifications regarding cannabis businesses, and it goes without saying that bookkeepers need to know them like the back of their hands to stay compliant. Legality, undoubtedly, is a top concern when it comes to the future growth of the cannabis industry.      

Going digital

As the foundation of good accounting and financial management, bookkeeping is all about being organized. You may have heard about digitized receipt services such as Shoeboxed that help to keep your documents safe, both online and offline, but there are more advantages of applying technology in bookkeeping than you would imagine. 

With brilliant features including verified data that is audit-ready and easily located, customized expense reports, and integrations with a variety of accounting systems, Shoeboxed offers an actionable data tool. Just like any other business, accurate records and transparent accounting procedures are what a cannabis business needs to track its finance and enhance its credibility with the bank and other financial institutions, as well as potential investors.

Shoeboxed provides digital secured quick bookkeeping solution for businesses

Software workarounds

A cannabis company is a complicated entity that involves several sub-industries (farming, chemical manufacturing, food production, and retail), and each requires all kinds of reporting pursuant to the many legislations at the state and federal levels. Another big headache for cannabis bookkeepers and accountants is the buggy seed-to-sale software requested by local regulations. Unfortunately, software that are specifically designed to assist this complicated process are still lacking and don’t work well with widely used accounting systems. 

While looking for more plausible solutions, specialists in the field suggest we make use of current software, combining their functions to serve our needs. For accounting, Quickbooks and Xero are popular choices although some attempts must be called for to create charts of accounts for each business stage. The good old Excel is also a basic tool for cost accounting, reconciliations, consolidations, and so on. If one realizes its versatility and puts decent effort into utilizing its functions, preparing monthly reports or creating accounting templates can become much easier. Finally, the unsolved issues of seed-to-sale software must be acknowledged so that predicted errors can be avoided. Making do with what we have seems to be the right strategy, at least for now.

Checks and balances

Problems with bookkeeping in cannabis businesses are mostly due to the huge amount of cash being collected, which may lead to undesirable consequences ranging from careless mistakes to fraud. There are so many things that can go wrong and result in inaccuracies found in the books when a lot of business activities occur every day. Many of them, however, can be prevented by implementing checks and balances consistently during operations. 

For example, cash counts on a daily and weekly basis can help to identify discrepancies between actual cash on hand and the records in the books. Likewise, sale receipts must be kept carefully and compared to the receipts listed regularly. It is also a good idea to have two people do the cash collection and reconciliation separately to lower the chance of a financial thief. In this way, professional bookkeepers and accountants make a perfect couple who compliments a reliable internal control system.

We have yet to know when the federal legalization of cannabis is coming and how it will change the bookkeeping practices in Cannabis companies. Whatever may happen, there is truth in keeping accurate and organized books for business smooth operations. 

What do you think about the future of the cannabis industry from now on? Do you have more tips on good bookkeeping for cannabis industry to add?

Don’t hesitate to share with us your opinions in the comment section below!

Accounting Solution Hack Now Financial Accounting in Business

Financial Accounting as an Accounting Solution? 

Financial accounting is an accounting solution that undertakes the work of recording, synthesizing data, and building financial statements to serve those who need to use accounting information. Information on the status and fluctuations of capital, assets, or physical and monetary flows will be synthesized by a financial accounting team based on data.

The finance and accounting team will include general accounting and data accounting, with a clear and transparent division of work to ensure work efficiency, specifically:

  • General accounting: Collect and process general information about the economic and financial situation of the unit. Through monetary units, general accounting provides data reflecting the use of assets and sources of asset formation of the enterprise.
  • Detailed accounting: Collect and process information according to a specific object on each unit. In detailed accounting, accountants must ensure accuracy to avoid affecting when resuming the data.

Financial Accounting for Businesses

A financial accountant is one of the positions that play an important role in the business, supporting businesses to perform tasks such as:

  • Provides information for those who need to use accounting information such as business leaders, external partners. Therefore, all financial accounting data provided should ensure accuracy, objectivity, and compliance with accounting principles and standards, which is the basis for managers to make appropriate and timely business decisions.
  • The information provided by a financial accountant is information about financial-accounting activities that have arisen, of a general nature, expressed in the form of value. Therefore, businesses can regularly monitor the status of their production and business activities.
  • Makes general financial statements about the business’ performance results of in the reporting period, including clear financial results and effective cost management that help businesses optimize costs and cut unnecessary expenses.
  • Manages risk and insurance for businesses when there are financial fluctuations.
  • Supports business leaders to regulate the financial situation of the business. The information from the financial accountant is also a legal basis to help businesses clearly resolve complaints, disputes, bank loans and investments.

Important Principles to Remember

Financial accounting should comply with the general corporate accounting rules. For instance:

  • Assets and liabilities are initially recognized at cost
  • Consistently apply the selected accounting regulations and methods in each annual accounting period. If there is a change in the method, the accountant should make a detailed explanation in the financial statements
  • To reflect in an objective, factual, complete, and correct manner in the accounting period in which economic, financial, and accounting operations arise.
  • For the preparation and submission of financial statements, accountants must do so accurately and submit them on time. The information and data in the financial statements of the enterprise should be disclosed according to the provisions of Articles 31 and 32 of the Law on Accounting.
  • Accountants evaluate assets and allocate expenditures and receipts in a uniform, careful and accurate manner with no deviation.
  • Preparation and presentation of financial statements must reflect the true nature of each transaction rather than its appearance

Financial accountants need to make monthly, quarterly, and annual reports such as: 

  • Monthly report: Provide VAT report, PIT report
  • Quarterly reports: Provide VAT reports, PIT reports, reports on the use of invoices
  • Annual report: Financial report, PIT finalization, CIT finalization, license tax
  • Accounting book:
    • General diary
    • General ledger
    • Receivable and payable report
    • Consolidate inventory report
    • Management of cash receipts and deposits
    • Management of raw materials, goods, finished products
    • Manage business revenue and expenses

In addition, a financial accountant also performs other tasks such as announcing the issuance of invoices, checking payment papers, etc. 

Management Accounting vs Financial Accounting

ContentManagement AccountingFinancial Accounting 
Purpose Provide information to serve the management of production and business activities.Provide information for the preparation of financial statements. 
Target customerCorporate managers (Board of Directors, Board of Directors). Business managers and external entities (Investors, banks, tax authorities, financial authorities, statistical agencies).
Providing information principlesThere is no obligation, managers are free to decide and adjust in accordance with the needs and management capabilities of the business.Respect the generally accepted and used accounting principles. In other words, financial accounting must ensure consistency according to certain accounting principles and standards so that everyone has the same understanding of accounting principles. Accounting information, especially financial statements, and financial accounting must comply with the provisions of applicable laws, especially the requirements of financial management and the requirements of society through disclosure. mandatory data.
Information’s scopesRelated to the management on each department (workshop, department) to each relevant individual.Involves financial management on an enterprise-wide scale.
Report timelineManagement accountants have more reporting periods: Quarter, year, month, week, day.Financial accounting has a reporting period: Quarterly, annually.
Information featuresEmphasize the relevance and flexibility of data, information is aggregated from many different angles.Reflect past information that is objective and verifiable. 
Statutory CompulsoryManagement accounting is not mandatory.Financial accounting is required by law. It means that the books and reports of financial accounting in all enterprises must be unified.

For small businesses and micro-enterprises to set up a complete and effective accounting system is quite difficult because of resource and cost constraints. Therefore, choosing an accounting service provider is currently the optimal solution for businesses today. Enterprises do not need to spend too much on paying staff salaries, office rental costs, or recruiting full accounting positions such as financial accountant, chief accountant, tax accountant, but still have a reporting system of reports and books in accordance with regulations.

At Shoeboxed, we provide the best receipt tracking and management system. As accountants and business owners using the Shoeboxed system, there is no need to worry about manage paper receipts as well as extracting transaction details from these invoices. Sign up now to use Shoeboxed for free or reach out to our representative for a demo and customized business plan.