How to Allocate Expense Receipts

To allocate expense receipts, one must establish accounting codes and remain organized.

Successful business management necessitates that expenses be accounted for according to function. Current accounting rules for non-profit organizations actually require this method. Expense allocating often means close monitoring of both receipts and labor costs. This provides a clear financial picture and also helps a business stay organized. The following steps outline a simple way to allocate expense receipts in your business.

Instructions

1. Create a list of current support services, projects and programs that exist within the company or organization. From these broad categories, sub-categories need to be established to keep track of individual labor costs and expense receipts.

   Support services, for example, may include multiple areas such as reception, office management, administration and accounting. While "support services" is the broad category, each function should be broken into a sub-category for accurate receipt tracking. To illustrate, reception tasks like sorting mail and answering phones may be lumped as "Administrative." Payroll and bookkeeping functions, on the other hand, may be simply labeled "Accounting." The amount of detail desired for each category and sub-category will likely reflect how tasks are designated.

   Projects within the company, such as construction or cleaning, need to be maintained separately and labeled accordingly. An excavating job for David Smith, for example, should be thus named "David Smith" to differentiate it from other existing projects. All expense receipts acquired for that project can then be kept separate from receipts for another job. This is key for determining revenue from each project and also maintaining accurate accounting records.

   Companies involved with programs should develop the same type of system as those with projects. This is especially true of non-profit or community-based organizations that tend to have involvement with charities and fundraising. To illustrate, expenses incurred for a homeless project should be appropriately named and kept separate from expenses for a fundraising project for high school students.

2. Define additional expenses that are often incurred by the company. Examples may include advertising, dues and subscriptions and insurance. It is important to be all inclusive with these items so any receipts or invoices can be allocated appropriately.

3. Assign an accounting code to each service, project, program and expense. The codes need to be easily inputted into an accounting system. It often makes sense to assign codes in a logical way and to follow industry appropriate standards. The NetMBA website offers a comprehensive list of sample account charts, including one dedicated to common expenses.

   Acknowledging accounting codes and using them to label receipts and labor costs is a viable way for a company to differentiate its costs. Without proper enforcement of these codes to label each invoice and receipt, a company may not be able to accurately monitor its expenditures.

4. Develop a clear procedure for employees to follow when allocating expenses and labor costs. An accounting manual may be ideal for this, in which employees are guided on how to record work time spent on each project or program. A list of all accounting codes should also be provided to employees so they know how to appropriately label their expense receipts. When company accountants receive receipts and time cards, they can then enter the correct codes for all expenses while performing accounting input. Such input requires a basic accounting computer program or method of hand bookkeeping.

   When developing accounting procedures, long-distance phone calls should also be tracked according to project or program. Another consideration is time sheets, where employees will likely allocate their work hours to specific projects, programs or support services. Those time sheets should have a designated space for recording accounting codes. Receipts for office supplies, postage stamps and materials should also be assigned to a support service, project or program when possible.

Tips & Warnings

• Monitor workplace budgets by using financial reports that detail expenses for each accounting code.

References

• Dugan & Lopatka: Reporting Expenses by Function
• NetMBA: Chart of Accounts
• Labrynth, Inc.: What are Indirect Costs

Resources

• The Bridgespan Group: Allocate Indirect Costs