How to Track Business Expenses (With Steps and Tips)
By Indeed Editorial Team
Published November 7, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Companies often incur expenditures from several sources during their operations. It's important for companies to maintain their financial health by optimizing their systems for tracking company spending. Being aware of company spending allows you to detect and monitor how the company spends money and make modifications accordingly. In this article, we explore why it's important to track business expenses, discuss how you can do so, share some helpful tips, and provide some examples of business expenses.
Why track business expenses?
Knowing how to track business expenses allows you to determine how to allocate funds. For example, you may determine whether to assign more or less money to office supplies, equipment, or machinery. Monitoring company spending is helpful during tax season because it simplifies the process of deducting expenses. Keeping track of company spending is an important feature of accounting, and it enables bookkeepers to manage their financial records accurately.
How to monitor business expenses
The following are some steps to help you track business expenses:
1. Open a business bank account
You can create a business bank account and use it only for company transactions. Establishing a separate bank account for the company to record and evaluate its spending ensures they stay separate from your personal activities. You may also consider getting a credit card for the company's needs.
2. Select a financial accounting system
Choose a suitable accounting system for the company to monitor its spending. You can browse through online accounting systems to determine which one is the most suitable for the business. You may also use spreadsheet software to record the organization's revenue and spending manually.
3. Choose between cash accounting and accrual accounting
To track expenses, select either the cash or accrual accounting method. In accrual accounting, a company records expenditures at the time of the transaction. For example, after finalizing a contract, the cash may not yet be in transition, but you still record the expense. In cash accounting, you only record costs after you have received or made a payment. While cash accounting is simpler because it depends only on cash transactions, accrual accounting is a more realistic depiction of financial health because it details the amount of money you owe and the money others owe you.
4. Connect the bank account to the accounting software
Accounting software is a computer program that facilitates the management of standard accounting operations. Accountants, bookkeepers, and others who manage financial duties for an organization are most likely to use this software. When you link the bank account to your accounting software, it's easier to track your expenses. This also provides an additional layer of security for your financial information by granting you more oversight and control.
After completing the connection, you can download all the company transactions to the chosen accounting software. Automatic imports ensure you don't overlook any changes to the company account. New costs appear each time you open the program, which also saves you time.
5. Supervise your receipts
Maintaining copies of business-related receipts is an excellent approach to monitoring and managing spending. These documents are necessary if you want to show evidence for tax write offs and deductions during tax season. You can also use mobile apps to take a photograph of the receipt and save it to a digital database. This eliminates the requirement to keep physical copies of all receipts. In addition, there are programs that enable you to attach receipts to invoices for commercial transactions.
6. Keep track of and evaluate your expenditures
You can record your spending to ensure that you account for them. Then, check them when it's time for an audit. If you decide you don't want to record your spending automatically, there are tools and programs that enable you to enter your expenses manually. You might decide to record your spending on a schedule, such as monthly or semi-monthly.
Tips for tracking business expenses
The following are some tips to help you track business expenses:
Hire a bookkeeper
A bookkeeper can track company expenses accurately and in a timely manner. A bookkeeper is a professional who oversees your financial entries and keeps you informed about business transactions and finances. Many bookkeepers are freelancers and can work contractually. Bookkeepers may also perform their work remotely, allowing for greater flexibility. You can search online freelancing websites to find bookkeepers offering their services and determine which professional is the most affordable for the company.
Identify your tax-deductible expenses
Identify the business expenses that are tax deductible, as this saves money and increases revenue. This is especially true for small businesses, freelancers, and startups. The following are examples of deductibles:
Advertising: This might involve brochures, video marketing materials, and any online advertisements.
Renting: This involves fees for renting machinery and equipment or any additional items and property you use for business purposes.
Banks: This involves the fees from opening and maintaining the business's bank accounts.
Vehicles: If you use any vehicle for business, you can calculate the mileage and deduct the cost of gas.
Housing: You can deduct home-related expenses if you use the property as a business, much like a home daycare.
Food: If you meet with professionals and discuss business during a meal, you can typically deduct 50% of its cost.
Repairs: This includes the costs of repairs and maintenance for business equipment, such as fax machines, printers, phones, and copiers.
Travel: If you travel for business by taking regular flights, for example, you can deduct these expenses.
Employees: The costs of employee wages and benefits are also tax deductible.
Examples of business expenses
The following are some examples of business expenses:
Costs associated with office equipment include the prices of printers, desks, and computers. This may also include materials or specialized equipment, depending on the sector. For instance, a company that repairs automobiles requires specific equipment to provide its services. These expenses may fluctuate based on the industry and company requirements. You might remove some of them.
Employee compensation and perks
It's important for companies to pay employees their salaries and give them benefits, such as vacation time, as part of their payroll expenses. Depending on the company, these expenses may be hourly or salaried. If the business employs freelancers or other independent contractors, you can list these expenditures here too.
A company may incur extra costs, such as licensing or permit fees. When starting a business, you may incur recurring payments, such as an annual renewal charge for a license. Depending on the circumstances, these costs may be deductible. In certain industries, you may deduct the cost of joining a trade group.
Some businesses incur frequent food bills. These may relate to taking a customer out to lunch or offering a special meal or workplace snacks to employees. These may fluctuate, but are important to consider when budgeting. In rare instances, such as when a company owner is present, the CRA may grant up to a 50% deduction. Consider maintaining detailed records of all business meals for more accurate tax preparation.
Repayment and interest accrual
If you owe credit card companies, banks, or vendors money, you can include the loan payment as an expense. Use this number to create a budget or to calculate your net income. If you pay interest on these loans, the interest may be deductible.
Maintenance and other expenses
There may be additional costs for an organization depending on the sector and province or territory in which it operates. For instance, certain companies pay for regular gardening or snow removal services. For any incidental or maintenance costs, you can establish a budgeting or accounting category.
You may amortize the cost of office furniture and company vehicles over the number of years they're in use. Accountants refer to this as depreciation. Depending on the organization and circumstances, you may be able to deduct some depreciation costs.
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