Receipt scanning and expense tracking are critical aspects of managing your finances, whether you're a freelancer, small business owner, or just someone looking to keep tabs on their spending. However, many people have questions about how receipt scanner and expense tracker apps work and what they offer. In this article, we address some of the most frequently asked questions to help you understand better how to make the most out of your receipt scanning and expense tracking efforts.
1. What is Receipt Scanning?
Scanning receipts means taking those paper records and turning them into a digital format using special apps or software. Unlike simply snapping a picture, a receipt scanner and organizer app apps allow you to easily store everything in one place. And it's not just about making your life easier with an (objectively more) organised receipt management. Digital copies don't fade or crumble like paper ones can, so you can keep them for as long as you need. And when it comes to business expenses and tax deductions, most tax agencies require you to keep records backed up for years.
Many of today's receipt scanning and expense tracking apps use advanced technologies like Optical Character Recognition (OCR) and AI (Artificial Intelligence). These features help the app read and sort all the info on the receipt for you. So you can quickly find what you're looking for, whether it's a particular item, the place you bought it from, or the date you bought it. Scanning your receipts isn't just useful for keeping track of stuff, it's also a great way to get a closer look at your spending.
2. What is Expense Tracking?
Expense tracking is a little bit different from receipt scanning, though they often go hand-in-hand. While receipt scanning is more focused on simply converting your paper receipts into digital format, expense tracking dives a bit deeper. It involves systematically recording all your business and/or personal expenses to manage your budget and prepare for tax filings. Also, one of the big benefits is that expense tracking systems usually let you sort your expenses into categories, which is helpful when you're trying to claim tax deductions. Categorising your expenses easily places each expense in the right section of your business's financial reports, like the income statement, streamlining your financial reporting process further. So while receipt scanning helps you keep records, expense tracking helps you analyze and utilize those records for better financial management.
3. Why Do I Need Both?
While receipt scanning helps digitize your records, while expense tracking goes deeper by categorizing and analyzing those digital files. Having both digital receipts and an organized method of tracking your expenses streamlines your financial tasks and makes it easier to spot trends or issues. When you combine these two, you get a streamlined approach to managing your finances that makes it way easier to spot trends or issues.
But here's another reason why both are increasingly important: modern accounting is largely digital. In today's world, most accountants and financial systems rely on digital records, so having your data pre-digitized during the "pre-accounting" phase can save a lot of time and effort. It also minimizes the risk of errors that could happen when manually transferring data from paper to digital formats. So not only do you make life easier for yourself, but you're also setting the stage for more accurate and efficient accounting down the line.
4. Are Receipt Scanner Apps Secure?
Most digital receipts and expense tracking apps use encryption and secure backup options to help keep your financial information safe. This generally provides a safer alternative to keeping a shoebox full of paper receipts or having a basic folder of pictures on your computer.
With physical receipts, you run the risk of damage, loss, or unauthorised access if they're not securely stored. Also, if you are not absolutely pedantic you might run the risk of actually forgetting a receipt or two at the bottom of your bag or purse.
Meanwhile, storing your receipts in a simple folder on your computer comes with its own set of risks. For example, if your computer breaks down, you could lose all your data, which is far more likely than you might think. Accidental deletion is another possibility. These basic and traditional methods of receipt organising don't offer the same level of backup that a specialised app does. So, using a reputable digital receipt app is a good step toward keeping your financial records both secure and well-organized.
5. Can I Use Digitalized Receipts for Tax Purposes?
In most countries, including the United States, digital receipts are accepted by tax authorities like the IRS. They are considered valid documentation for tax deductions and credits, making it easier for you to comply with tax laws.
6. How Do I Choose the Right Expense Tracking App?
When selecting an expense tracking app, consider factors like user-friendliness, the variety of features offered, and how well it integrates with other systems you may be using. But beyond these basics, you'll also want to think about your specific needs:
Evaluate your pre-accounting needs. Do you need to prepare detailed data for an accountant or financial reports? Features like automatic data extraction and AI-driven business receipt categorization are some features you should look out for.
Do you need or want to track both income and expenses? Some apps let you do both, offering a more rounded view of your finances. Tracking income, e.g. outbound invoices of business sales, is also part of pre-accounting. The ability to manage both types of records in the same app clears up your financial picture and streamlines accounting.
If you're dealing with multiple currencies, you'll want an app that can easily convert currencies for you, especially if you travel a lot or do international business. And since currency rates change from day to day - so does your expenses. Make sure the app supports daily and accurate historical conversion rates.
Do you receive lots of PDF receipts to your email inbox? In that case, look for an app that allows you to easily scan and add them by simply forwarding your emails.
If you'd like your accountant to have a look at your records, see if the app offers collaborative features. Many apps support inviting your accountant to collaborate without additional cost.
By carefully considering these points, you're more likely to find an app that really suits your financial management needs. Some apps are more focused on other aspects than others, and some comprehensive accounting solutions may offer most of these features at the cost of considerably higher subscription fees. However, most small business receipt scanners and organizers will be more than enough for your needs - and with substantially lower fees.
We have gathered a list of popular receipt scanning with expense tracking apps in a separate blog article.
7. Can I Share Digital Receipts With My Accountant?
Yes, the feature to share your digital records with your accountant is more than just a convenience — it's an essential part of what's known as "pre-accounting." Pre-accounting is the crucial first step of gathering and organising your financial data before it gets analyzed in more detail. When you use an expense tracking app that allows for easy sharing, you're streamlining this initial process. This makes it simpler for your accountant to get an accurate picture of your financial situation, prepare reports, and ensure you're compliant with tax laws. It's not just about keeping things neat; it's about laying the groundwork for precise and effective accounting. So, we recommend choosing an app that allows you to easily share the documents from the pre-accounting phase to your accountant.
Receipt scanning and expense tracking are invaluable tools for modern financial management. They offer the convenience of easy access to your records, enhanced security features, and the ability to analyze your spending habits. Whether you're a seasoned business owner or just starting to manage your finances, understanding how these tools work can make a significant difference in your financial well-being.