How to Report Business Expenses

The actual process of properly reporting business expenses is one of the most important financial tasks for any type of company. For instance, by correctly identifying and reporting business expenses, a company can save an enormous amount in taxes.

Before business expenses are actually reported, the company must choose between a cash basis method and an accrual basis method. When using a cash basis method, the expenses can be reported when they are paid versus the accrual method, which reports expenses when they are owed.

When putting together your business expense reporting approach, it is important to place related expenses into their own categories. This will make the reporting process much more efficient for the company, especially when reviewing the actual numbers.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Business Cash or accrual accounting method Computer to make the reporting tasks more efficient

1. Determine whether to use the cash or accrual accounting method. Businesses with revenues under $5 million per year are free to select either method. Businesses that have revenues exceeding $5 million per year or stock an inventory of items that will be sold and the gross receipts for those items are over $1 million per year have to use the accrual method. The cash method provides a clearer picture of how much cash is on hand but does not provide a good picture of the ups and downs over the long term. The accrual method is good for seeing long-term seasonal changes but is not so good when trying to pinpoint the actual cash reserves. If your business qualifies to choose between the two methods, then for simplicity's sake, select the cash basis accounting method.

2. Organize recurring similar types of expenses into their own categories. Account for special types or unique expenses as their own line items, or if the amounts are relatively small, then place them in the miscellaneous category.

3. Depending on whether the cash or accrual method is being used, record each expense when it can be claimed.

4. Total all the incurred expenses for each month, each quarter, and the entire fiscal year. This type of discipline will make it much easier when doing your tax reporting.

5. When preparing for tax reporting make sure to separate business expenses from the cost of goods sold, capital expenses and personal expenses.

Tips & Warnings

• Use an accounting software package to make the business expense reporting tasks more efficient.
• Do not mix the cash and accrual methods when reporting expenses.

References

• Keeping the Books: Basic Recordkeeping and Accounting for the Successful Small Business; Linda Pinson; 2007

Resources

• Find Accounting Software