Why Detailed Receipts Are Important
Financial managers need to see a detailed list of expenses on a receipt before they decide which expenses to reimburse. Some businesses don’t automatically provide these receipts, and this situation could create problems for a traveling sales representative. A receipt that shows you each individual expense is known as an itemized receipt or a detailed receipt. A simple receipt might just tell you the total bill for your purchase, but an itemized receipt shows you more details.
Without an itemized receipt, it might not be possible for a company to approve a reimbursement request. Universities may ask student groups to submit itemized receipts before reimbursing their event costs as well. Here are a few more reasons why it’s useful for accounting automation software to create itemized receipts.
Prohibiting Reimbursement for Certain Expense Categories
You might be willing to let a traveling sales representative charge a meal to a company card, but what if that sales representative wants to charge a glass of wine or a bottle of beer to the card as well? Some businesses don’t allow their employees to spend their money on alcohol, or classify alcohol in a separate category from meals. But if a restaurant just gives you a receipt that shows you the total bill, that wouldn’t tell you if the representative ordered alcohol with their meal. You’d need to be able to separate the cost of the entrees from the cost of the alcohol.
Subtotals and Discounts
A detailed receipt also shows you what each item cost before taxes. So if you went to the hardware store and spent $100 on supplies, the receipt would show you a subtotal of $100 for that purchase. Then, if you had a store discount of $5, that would be subtracted from the subtotal. And if you paid $7 in sales taxes on the purchase, then the taxes would be shown separately as well.
It’s possible to use optical character recognition (OCR) to identify individual line items on a receipt. So if you have the receipt from the hardware store, you can scan it and record the tax charge and any applicable discounts. Accounting automation software can also calculate the correct sales tax for a store in your area, so it would also be possible to calculate the tax on a purchase that way.
Setting Category Limits for Expenses
A hotel receipt might show that a traveling sales representative spent $400 at the hotel, but that bill might include a $20 fee for a premium movie, a $50 fee for room service, and another $40 for drinks at the hotel bar. In this case, the cost of the actual hotel room would be $400 – $110, or $290. It’s important to break out these expenses separately in case the representative spent more than they were allowed to in a specific category. For example, they might have been allowed to spend up to $400 on their hotel room, but if they overspent on room service they might have exceeded their meal budget. And that $20 movie might not be a reimbursable expense.
TripActions, a spend management app, has software that can analyze a receipt and calculate how much a sales representative spent in each category. This company’s receipt itemization software works on international receipts as well, which is an important feature for enterprise customers. If you’re sending sales representatives on trips to France, for example, then it’s important that your spend management software can scan a receipt from a Paris hotel and record all of the expenses in the right categories.
Audit Protection
An organization might ask for detailed receipts for its own protection. As the Boston University travel services department explains, the university could be audited if it can’t provide receipts that list individual expenses. Otherwise, it might look like the school isn’t monitoring its expenses carefully. While accountants can take a receipt and estimate how much money the user spent in each reimbursement category, this process isn’t as accurate as recording information from an itemized receipt. So now the travel services department is only accepting itemized receipts.
Benefits Management
A flexible spending account (FSA) allows an employee to use pretax income to pay healthcare bills. You can set these accounts up for your employees as a benefit. These accounts can save eligible employees hundreds of dollars per year on taxes, according to the Office of Personnel Management. But employees can only spend money from these healthcare benefit accounts on eligible expenses like eyeglasses, prescription drugs, and lab tests. So they need to be able to show the FSA program administrator that they spent money on approved healthcare expenses, and a detailed receipt will help them do that.
Conclusion
Itemized receipts, or detailed receipts, protect your company from overspending and make sure that you’re not spending money on unauthorized transactions. These receipts may also help you avoid audits in certain situations. Accounting automation apps use optical character recognition (OCR) software that can read a paper receipt and classify each expense on the receipt into the correct category. This is useful in situations where a bank account statement just gives you the total value of a purchase.
