How do you manage expense reports with unique expenses, like capital expenditures?

Expense reports are an essential part of corporate finance, as they help track and reimburse employees for business-related expenses. However, not all expenses are the same, and some may require special treatment or approval. For example, capital expenditures, or CAPEX, are expenses that result in the acquisition or improvement of long-term assets, such as equipment, vehicles, or buildings. CAPEX are not expensed in the income statement, but rather capitalized and depreciated over time. How do you manage expense reports with unique expenses, like CAPEX, without compromising your accounting standards and budgeting process? Here are some tips to help you handle this challenge.

1 Define your CAPEX policy

The first step is to have a clear and consistent policy for defining and approving CAPEX. You should specify what types of expenses qualify as CAPEX, what are the minimum and maximum thresholds, what are the expected useful lives and depreciation methods, and who are the authorized approvers. You should also communicate this policy to your employees and managers, and provide them with the necessary forms and templates to submit their CAPEX requests.

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Hafiz Muhammad Saleem, ACA

EY Alumni | Deputy Head Finance & Control Specialist | Project Management Certified | Six Sigma Black Belt Certified | Helping Organization in Implementing Control Environment to Grow
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Generally, managing expense reports with unique expenses like capital expenditures involves several following steps: 1- Identify & categorize unique expenses to differentiate them from regular costs. 2- Define and approve budget at sub category levels of such expenses. 3- Define Approval Hierarchy. 4- Define time and value based red flag thresholds 5- Monitoring the progress of such expenses and activities levels w.r.t to budgeted value and time respectively. 6- Involve technology & systems to generate and report the reporting and progress of such expenses at different required parameters 7- Ensure its classification & reporting as per required standards 8- Regular follow ups & steps towards timely identification of corrective measures

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Ernest Teal
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I code them appropriately ok the expense report. But I am not in the habit of putting these on an expense report. There must be communication with the purchasing agent for a capital expenditure

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AVIK CHAKRABORTY

Associate Director (Global Process Owner & Unit Head)- F&A Solutions Transformation Consulting-Leadership For People, Process & Performance Growth-Intelligent Process Automation & Transformation For Value Chain Creation
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Suppliers are the important associated factors impacting the expense management for any business and it depends upon the business policy aligned to production & selling portfolio-decide the categorization of the expenses. Aspects for expense categorization: 1. Goods for resale & Goods not for resale 2. Demand & supply of goods impacting production cycle 3. Direct & indirect cost factors, operating cash flow status & operating profit 4. Status of open inventories, stock & Cost in progress 5. Clear procurement policy, Capex & Opex Policies & approval matrix 6. Finance & Operating leases & control governance Asset under construction, Ongoing project status, Open commitments & Budgetary controls-other key factors controlling the expense nature

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2 Review and validate CAPEX requests

The second step is to review and validate each CAPEX request before approving or rejecting it. You should check if the request meets the criteria of your policy, if it is aligned with your strategic goals and budget, if it has a positive return on investment and payback period, and if it complies with the relevant tax and accounting rules. You should also verify the supporting documents and receipts, and ask for clarifications or revisions if needed.

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3 Record and track CAPEX expenses

The third step is to record and track each CAPEX expense in your accounting system and financial statements. You should create a separate ledger account for each CAPEX category, and record the purchase price, date, and depreciation schedule. You should also update your fixed asset register, inventory, and balance sheet with the new or improved assets. You should monitor the performance and utilization of your CAPEX assets, and adjust your depreciation rates or impairment charges if necessary.

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4 Reconcile and report CAPEX expenses

The fourth step is to reconcile and report your CAPEX expenses on a regular basis. You should compare your actual CAPEX spending with your budgeted and forecasted amounts, and analyze the variances and trends. You should also prepare and present your CAPEX reports to your senior management, board of directors, auditors, and stakeholders. You should highlight your CAPEX achievements, challenges, and opportunities, and provide recommendations for future improvements.

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5 Train and educate your staff on CAPEX

The fifth step is to train and educate your staff on CAPEX, especially those who are involved in the expense report process. You should explain the purpose and benefits of CAPEX, the difference between CAPEX and operating expenses, the impact of CAPEX on your cash flow and profitability, and the best practices and tips for managing CAPEX. You should also provide feedback and recognition to your staff for their CAPEX contributions, and encourage them to share their ideas and suggestions for optimizing CAPEX.

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6 Use a software tool to automate CAPEX

The sixth and final step is to use a software tool to automate and streamline your CAPEX management. This tool should integrate with your accounting system and expense report software, and offer features such as online submission and approval of CAPEX requests, a workflow and notification system for status updates, data validation and error detection, reporting and dashboarding capabilities for insights and analysis, as well as customization and scalability options. Utilizing a software tool can save time and resources, reduce errors and risks, enhance visibility and control, and improve decision making and performance.

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7 Hereâ€™s what else to consider

This is a space to share examples, stories, or insights that donâ€™t fit into any of the previous sections. What else would you like to add?

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Directory

How do you manage expense reports with unique expenses, like capital expenditures?

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1 Define your CAPEX policy

2 Review and validate CAPEX requests

3 Record and track CAPEX expenses

4 Reconcile and report CAPEX expenses

5 Train and educate your staff on CAPEX

6 Use a software tool to automate CAPEX

7 Hereâ€™s what else to consider

Corporate Finance

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