Expense policy: who spends, who approves, what proof
A one-page expense policy, an approval matrix that routes by amount and refuses self-approval, and the receipt rule, on Northwind's first October requests.
Until October every dollar Northwind spent arrived as a vendor bill. Then people started buying things: a hosting charge on a card, a box of shipping supplies on someone's own debit card, a hotel for a trade show. None of it comes through accounts payable, and all of it is still an expense. An expense policy is the page that says who may spend, how, with what proof, and who says yes.
The policy does not guess which path applies. An employee choosing the wrong one is the most common source of a cost booked twice or not at all, so the form asks, and the answer decides the entry.
A policy that fits on one page
Step 1: What can be bought
Name what the company buys for people (a laptop, software seats, travel to customers) and what it does not (personal subscriptions, cash advances, anything that needs a contract signed).
Step 2: How people pay
Who gets a card and with what monthly limit. Everyone else is reimbursed, and the policy says that employees are never to lend the company money for regular spend.
Step 3: What proof is needed
A receipt for anything a person would have to remember, and a business purpose written down at the time. For a meal that means who it was with and why.
Step 4: Who approves
A table of amounts and approvers, below. The system applies it; people do not apply it from memory.
Step 5: Deadlines and consequences
Expenses are submitted within 30 days, and a missed deadline has a stated consequence, such as the card being paused.
The approval matrix
An approval matrix ties the amount to the number of people who must say yes. Northwind uses three tiers. The second tier's ceiling is its capitalization threshold, $2,500, so anything that might become an asset passes through Finance before it is bought. One rule sits above the table: nobody approves their own request. That is segregation of duties at its smallest.
Approval posts nothing. A request is a commitment, not a liability, so the books move when the purchase does, and the entry is the same whichever path paid for it.
Laptop for the counter, under the capitalization threshold
| Account | Debit | Credit |
|---|---|---|
| 6700Equipment and supplies expense | 1,400.00 | |
| 1000Cash | 1,400.00 | |
| Balanced | 1,400.00 | 1,400.00 |
The laptop request, approved and bought. The same entry Northwind's October book posts as OCT-8L.
Receipts, and the line the IRS draws
For the tax deduction, the regulation asks for documentary evidence, such as a receipt, for lodging away from home and for any other expenditure of $75 or more. Below that line a record of the amount, date, place and purpose is enough. For travel and gifts the Code adds that the taxpayer must be able to show the business purpose and the business relationship of the person who benefited.
The policy is stricter on purpose. The tax line is the least a company can get away with; the policy line is the amount below which a person cannot reliably remember what the charge was a month later.
Approve before the spend
- Good at
- The money has not moved when the no is said
- Budget owners know what is coming
- Watch for
- Slow, and people route around it for the small things
- Approvers rubber-stamp when the queue is long
- Best for
- Rare, large or irreversible spend: a contract, a hire's equipment, anything over the top tier
Limits first, review after
- Good at
- No friction for the small, frequent things
- The card limit is the pre-approval
- Watch for
- The no comes after the money has gone
- Needs a reviewer who actually reads the feed
- Best for
- Day-to-day spend by trusted people on a company card with a limit
Trust and a monthly look
- Good at
- Costs nothing to run
- Matches how a two-person company works
- Watch for
- Nothing is checked until someone outside the spender looks
- Does not survive the first hire
- Best for
- A founder who is the only person spending, for the first few months
A policy is the rule, the matrix is the routing, and the receipt is the proof. Without the third, the first two are opinions.
Finished this lesson?
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- IRC §274(d) (opens in a new tab)Substantiation: amount, time and place, business purpose and business relationshipFree to read
- Federal regulation
- Treas. Reg. §1.274-5(c)(2)(iii)(A) (opens in a new tab)When a receipt is required: lodging, and any other expense of $75 or moreFree to read
- IRS guidance
- IRS Publication 463, Travel, Gift, and Car Expenses (2025) (opens in a new tab)Reimbursements, per diem, the 50% limit on meals and accountable plansFree to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- ExpenseOutflows or other using up of assets, or incurrences of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when incurred, not when paid
- Expense reportAn employee's itemized claim for business costs they paid out of pocket or on a company card, with receipts and a business purpose for each line. It becomes a liability to the employee once approvedConvention
- ApprovalFormal authorization of a specific version
- Approval matrixThe written table of who may approve what — by amount, by type of spend and by cost center — and who stands in when they are absent. The system enforces it, and a limit is checked against the whole bill, never the line
- Segregation of dutiesSplitting authorization, recording, custody of assets and reconciliation across different people, so no one person can both commit and conceal an error or fraud — at minimum, preparer ≠ approver
- ReimbursementRepaying an employee for a business cost they paid personally. Until paid it is owed to the employee, not to a vendor; whether it is tax-free depends on the employer's accountable plan
- Corporate cardA card issued to an employee against a company account or liability, so business spend is charged to the company and not paid by the employee first. The card statement is a payable to the issuer, and each charge still needs a receipt and a codeConvention
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Procure to pay (AP)The payables stack from requisition to reconciliation: requisition → PO → receipt → bill → approval → payment → reconciliation.
- Controls & auditAccounting software is a system of controls, and most of them are enforced in the UI: segregation of duties, approvals bound to a version, an append-only audit trail, and evidence attached wherever an auditor will ask for it.
- Company cards and receipts: coding, matching, reconcilingCompany cards without the month-end receipt chase: how to code card spend, match receipts, handle missing ones and reconcile the card to its statement.
- Employee expense reimbursements and accountable plansHow to reimburse employees tax-free under an IRS accountable plan: business purpose, timely receipts, excess returned, mileage and sales tax on receipts.
- ApprovalPolicyEditorSeparate-approver shown as fixed, not a toggle.
- ApprovalChainSegregation of duties enforced. Approvals bind to a version.
- ApprovalInboxMobile-first, document inline.
- ExpenseCaptureCamera-first, policy violations shown at entry.