Everyone in business must keep records. What can good record keeping do for you? I'll give it to in a straight no-glamour content.
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Make sure you monitor progress of your business: Good record keeping can show whether your business is improving, which items are selling and what changes are needed. Good record keeping can be difference between failure and success.
Prepare accurate financial statements: You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can be a big help when dealing with your bank and creditors. An income statement shows income and expenses of business for a given period of time. A balance sheet shows assets, liabilities and your equity in business on a given date.
Identify source of receipts: You will receive money or property from many sources. Your records can identify source of your receipts. You need this information to separate business from non-business receipts and taxable from nontaxable income.
Keep track of deductible expenses: You may forget expenses when you prepare your tax return unless you record them when they occur. Believe me you will need all deductible expenses you can find.
Prepare your tax returns: Records must support income, expenses and credits you report on your tax returns. Generally, these are same records you use to monitor your business and prepare your financial statements. You must keep your business records available at all times for inspection by IRS and/or your State Department of Revenue. If IRS or State Department of Revenue examines any of your tax returns, you may be asked to explain items reported. A complete set of records will speed up examination and make experience feel that much less like a rectal exam.
What kind of records should you keep?
Except in a few cases, law does not require any special kind of records. You may choose any system suited to your business that clearly shows your income.
The type of business you operate affects type of records you need to keep for federal tax purposes. You should set up your books using an accounting method that clearly shows your income for your selected tax year. If you are in more than one business, you should keep completely separate records for each business.
A few Bookkeeping Tips:
* Daily business records are best * Identify source of receipts * Record expenses when they occur * Keep complete records on all assets
Some supporting documents you will need:
Purchases, sales, payroll and other transactions you have in your business will generate supporting documents such as invoices and receipts. These documents contain information you must record in your books.
It is important to retain these documents because they support entries in your books and on your tax returns. You should keep them in an orderly fashion and a safe place.
Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips and cancelled checks. Generally, it is a good idea to keep your supporting documents in file folders in designated categories. For example, if you write a check to Joe's Office Furniture and record expense as "office supplies", then receipt should be placed in a folder marked "office supplies".