As a business, you always need to track your expenses. It’s important to know how business revenue is being utilized. Tracking business expenses is also important for tax purposes in Tanzania.

Before we go any further, what is a business expense? 

What are business expenses?

Business expenses can be defined as costs incurred during the day to day operation of the business. These expenses are part of the income statement that are subtracted from the revenue to come up with the taxable net income for the business.

It’s always important to track these expenses as they allow you to adjust operations when market or economic conditions change.

According to PWC, business expenses/startup expenses need to meet the general deduction criteria i.e. are revenue in nature and were incurred during the production of income. 

Business expenses can be divided into:

Operational expenses are those costs that are used to run the business, costs incurred in the day to day.

On the other hand, capital expenses are amounts that companies use to purchase major goods and services that will be used for more than a year.
An example of capital expenditure would be purchase of equipment or building expansions to name a few.

Now that you understand what business expenses are, let’s have a look on how to track these expenses. 

How to Track Business Expenses 

Have a file cabinet for your expenses

The first step should be to create a file cabinet. This file cabinet should contain folders that are categorized based on the expenses that your business incurs.

Categorizing expenses in this manner allows you to understand the crucial expenses for your business and what expenses need to be reduced.  

It's also important to maintain a soft copy of all your expenses as a backup to those in the file cabinet.

With our accounting module, you can utilize the chart of accounts to organize your expenses and the cash book ledger management to view your expenses per period.

Have a business account separate from your personal account

The second step to track business expenses is to separate your personal account from your business account.

If you’re operating as a company, it’s important to open a separate account for your business. A bank account for your business helps keep the expense records organized for tax purposes. 

It’s a golden rule in accounting that personal and business transactions should not be mixed. Separating accounts will enable you to categorize and track all expenses as well as incomes resulting from your business operations.

Review & Categorize Your Expenses Regularly

You want to make sure that reporting is done accurately, so it’s always important to categorize your expenses. As a business owner, you should always get into the practice of reviewing your expenses (it can be a weekly event).

While it can be a daunting task, using an accounting software will do the sorting and reporting for you. Reviewing and categorizing expenses provides you with a bigger picture on how revenue is being utilized in the business.

Use software to keep your expenses in one place

It’s advisable to always use an accounting software in your business to simplify different aspects of the accounting process.

For instance, the VISION accounting module provides features like VAT and bank reconciliation that makes sure that your numbers tally and are in order.

The software will also provide reports that would otherwise take time to manually prepare. For instance, the VISION accounting module can provide you with the financial reports and sales reports, to name a few, that provide you with a better picture of the financial aspect of the business.  

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Digitize your receipts

It’s always good to have physical receipts related to operational expenses incurred by your business as they provide proof of payment for the expense.

The downside with receipts, especially those printed by an EFD machine, is that the content on the paper can fade over time. This makes it difficult to store data for long periods.

It might also become a potential headache during an audit as the expenses claimed will need accompanying receipts.

To avoid this problem, it’s advised that you digitize and categorize the receipts in an accounting software. By doing this, you ensure that data is captured for longer and that you’re ready come audit/reporting time. 

Conclusion

It’s important to stay on top of your expenses and income. We advise using an accounting software to help ease the process. Many softwares come with features and reports that help you get the most up-to-date financial information regarding your business.

Tracking expenses will guide you when you need to make changes in your business. It will show how much the business spends and where it might need to cut down expenditures.

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