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Gross Receipts are income you receive from your business. You should retain supporting documents, which show amounts and sources of your gross receipts. Examples of gross receipts include cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips, email records and your forms 1099-Misc.
Purchases are items you buy and resell to customers. If you are a manufacturer or producer this includes cost of raw materials and/or parts purchased for making into finished products. Your supporting documents should show amount paid for those purchases. Examples of documents for purchase include cancelled checks, cash register tapes, credit card slips, email records and invoices.
These records will help you determine value of your inventory at end of year.
Expenses are costs that you incur to carry on your business. Your supporting documents should show amounts paid for those business expenses. Examples of documents for expenses include email documents, cancelled checks, cash register tapes, account statements, credit card slips, invoices and a petty cash system for small purchases.
A petty cash fund allows you to make minimal payments without having to write checks for small amounts. Each time you make a payment from this fund, you should prepare a petty cash disbursement slip and attach it to your receipt as proof of payment.
Travel, transportation, entertainment and gift expenses require some extra documentation to deduct them as business expenses. For example, to deduct cost of taking a client to lunch, you should record name of client, purpose of lunch and topic discussed at lunch.
Assets are property, such as your computer and fax that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to figure annual depreciation and gain or loss when you sell assets. Your records should show when and how you acquired asset. Also include purchase price, date of purchase, cost of any improvements, deductions taken for depreciation and deductions taken for casualty losses like fires or storms, how you used asset, when and how you disposed of asset, selling price and any expenses of sale. Example of these supporting documents may include purchase or sales invoices, real estate closing statements and cancelled checks.
This is a just quick, crash course article on basic record keeping. But, whatever your business, remember, good record keeping is essential to your financial survival. So take time and keep good records. The headaches you save may be your own.
Thanks for reading
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