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Expense Management

How to Track and Categorise Business Expenses with Accrual Accounting

16 October 2023
Grof Writer
8 Minutes Read
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Expenditure is a critical component of your business. The company can be profitable if you carefully manage expenses while growing revenue. But many small business owners need help understanding how to manage business expenses. This post discusses tracking and categorising company expenses using accrual accounting for efficient expense management. 

 

Benefits of Tracking Business Expense 

Business expense tracking involves monitoring the costs of obtaining goods and services over time. You should always track the expenses of your business for several reasons. 

 

For example, tracking company expenses simplifies the tax filing process. Filing your tax returns can be complicated if you do not have accurate and detailed records of your expenses. Therefore, tracking business expenditures provides all the necessary details for quickly filing returns. 

 

Furthermore, tracking business expenses helps to prevent fraud. Fraud is a critical problem for small and even large businesses. Companies spend colossal sums of money on systems and processes for detecting and preventing fraud. 

 

But business expense tracking is an effective method of detecting and preventing fraud in your company. If you closely monitor business expenses, you will easily detect overpayments or unauthorised expenditure

 

Moreover, tracking expenses promotes financial prudence. You must control the finances of your venture for long-term success. Proper business financial management means understanding the fiscal position of the company and avoiding waste. 

 

Expense management is a challenge for many small businesses. You may spend money on unnecessary items if you do not carefully monitor where the money goes. On the other hand, business owners who track how they spend business finances help eliminate this problem.  

 

What is Accrual Accounting? 

Accrual accounting is the practice of recognising business revenues and expenses when you earn and incur them, respectively. This practice produces the following accounting concepts: accrued expense and revenue.

 

Accrued expense also known as accrued payables: The costs of purchases that your business incurs but has yet to pay. Accrued revenue: The money you record coming into the business, although it has yet to reach the bank account. In accrual accounting, accrued revenues are also accrued receivables. 

 

Accrual accounting is more complex than cash accounting. When you run a small sole proprietorship business, it makes sense to use cash accounting. You can record the transactions immediately after they occur. 

 

However, as the business grows, it may be necessary to use accrual accounting. You will record expenses when the bill arrives, not when paying out. This accounting system is effective for managing business spending. 

 

Many business owners use specialised accounting software because of the complex nature of accrual accounting. These applications have mechanisms for effective expenditure tracking and spend management. The applications have bank and purchase journals to help you track spending accurately. 

 

Importance of Categorising Business Expenses 

The number and amount of business expenses increase as your company grows. Small business owners need to pay more attention to categorising their company expenses. However, it is essential to categorise business expense items meticulously. The following are some of the benefits of organising your business's costs. 

 importance-of-categorising-business-expenses

 

Taxation 

The amount of money you pay in taxes affects the future of your business. Luckily, the law allows business owners to apply for tax deductions and reduce the total taxable income for their companies. 

 

You can comfortably apply for such deductions when you clearly understand the difference between deductible and non-deductible expenses. Hence, carefully categorising business expenses improves expense management and reduces the tax burden. 

 

Deductible expenses 

Deductible expenses comprise the cost of items or services that are core to the functions of your business. In Singapore, deductible business expenses are regarded as 'wholly and exclusively incurred in the production of income'. 

 

You can take advantage of deductible expenses to reduce the overall tax burden of your business. Subtracting the deductible expenses reduces the total reported income for the company. Consequently, the overall taxable revenue for the business becomes less than before. 

Here are some of the most common deductible business expense items. 

  • Health insurance expenses 
  • Payments for professional services, including legal, marketing, and business process optimisation 
  • Reimbursements for tuition services 
  • Payroll expenses 
  • Travelling costs 


Non-deductible expenses 

Non-deductible expenses are not related to the core functions of the business. Such expenses comprise the costs of personal services. Companies cannot use non-deductible expenses to reduce their taxable income. You may refer to the article by Inland Revenue Authority of Singapore to understand more. 

There are many examples of non-deductible business expenses. Some common ones include the money you can contribute to a political party or lobbying. Other examples of non-deductible expenses are fines by the government and the costs of improving fixed assets. 

 

Budgeting 

As the saying goes, “If you fail to plan, you plan to fail”. Hence, you need to plan carefully for the future expenses of the business. Budgeting can be difficult without carefully tracking and categorising the business expense figures. It is vital to categorise every expense item for the company. You can then efficiently allocate specific amounts of money for the various items in the future. 

 

Accounting 

The business accounting cycle includes posting expenses and revenue figures. You can streamline the business accounting process by categorising and tracking all expenses. Furthermore, effective expense management reduces accounting errors and minimises the risk of making losses. 




How to Categorise Expenses for Small Businesses 

Your business can benefit from accurate categorisation of expenses. The tax burden reduces when you categorise deductible expenses correctly. The following are steps for organising expenses for small businesses. 

 

Maintain business expense records regularly 

Record all the details of expenditure transactions as they occur. You can label the expenditure reports using weekly, monthly, and even quarterly periods. It is wiser to use software than spreadsheets to record and track expenses. 

 

Classify expenses 

Create major classes for effective spending management. Consider every spending item and record it under the appropriate class. Some standard expenditure classes for small businesses include rent, salaries, licenses and permits, vehicle use, utilities and more. 

 

Put in place controls 

Controls may take the form of procedures for approving expenditure requests. The process usually includes steps that management or other senior staff take to verify expenditure items before releasing payments. This approach is essential for limiting spending on non-deductible items. 


We know how overwhelming it can be to juggle various expenses. Trust us, we've been there. That's why we've created a blog for you about four key business expenses to focus on as you work on growing your business. It's a game-changer, and we highly recommend checking it out! 

 

Tips for Tracking Business Expenses 

Although it is critical to track your business expenses, you may need help to complete the procedures correctly. The main reason may be a lack of skills to accurately record and monitor how the business spends money. Nevertheless, it is crucial to track expenditures for effective expense management. Here are a few tips to help you. 

 

Have A Separate Bank Account for Business 

Creating a separate bank account for your business at the startup stage is vital. Don’t combine business and personal accounts. Instead, open a separate business bank account and only use it for business transactions. Not only is it easier to find your tax-deductible business expenses, but you limit your personal liability by keeping business and personal funds separate. 

 

Advanced expense management tool 

Tools like Grof for expense management bring a real game-changer to businesses. Imagine this: tracking your expenses becomes as simple as a few clicks. No more sifting through piles of receipts or wrestling with Excel sheets. With a financial app, it's like having a personal assistant for your finances. 


Here's the cool part – you can snap a pic of your receipt, and the app does the rest. It magically fills in the bill info, saving you time and hassle. Plus, you won't have that annual headache of hunting down receipts for tax season. 


But that's not all – you can also effortlessly categorise your bills with just a few clicks. Need to provide statements or data to your accountants? No problem. The app lets you export them whenever necessary. It's as easy as pie! 

 

Outsourcing bookkeeping and accounting services 

If managing your own bookkeeping feels overwhelming or time-consuming, there's a solution – consider outsourcing it to an online bookkeeping service such as Grof. With their specialised software and dedicated team, they handle tasks like importing bank statements, organising financial transactions, and creating monthly financial statements. This approach allows you to focus on your strengths and concentrate on business growth, all while leaving the bookkeeping to the experts. 

 

Conclusion 

Monitoring business spending helps streamline financial management. Business expenses may either be deductible or non-deductible. Minimising non-deductible expenditures helps reduce the taxable income of your company. You can categorise expenses by classifying them and implementing control measures for approving payments. Grof’s business account is ideal for categorising, tracking, and managing business expenditures. Experience simplified financial management for your business today for free, sign up now

 

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Your Ultimate Guide to GST Singapore
Uncover the nuances of Goods and Services Tax (GST) and the advantages for companies registered for it, alongside the responsibilities of a GST-registered business. Get your free copy today!
Your Ultimate Guide to GST Singapore
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Uncover the nuances of Goods and Services Tax (GST) and the advantages for companies registered for it, alongside the responsibilities of a GST-registered business. Get your free copy today!
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