10 reasons to keep records
- Cut your costs
- Maintain or increase your profits
- Obtain financing
- Control your inventory
- Separate your business expenses
- Complete timely and accurate local, state, and federal reports
- Know your bottom-line
- Track your cash-flow
- Check the state of your business’s health
- Save time and grief later
The business you are in affects the type of records you need to keep for tax purposes. Set up your record keeping system using a bookkeeping method that clearly shows your income and expenses. If you have more than one business, you should keep a complete and separate set of records for each business. Don’t co-mingle funds in your personal or business accounts.
Purchases, sales, payroll, and other transactions will generate supporting documents:
- Canceled checks
- Deposit slips
- Paid bills
- Sales slips
Ask for a Records Retention Schedule from us.
Recording Business Transactions
A good record keeping system includes a summary of your business transactions. These are ordinarily summarized in books called journals or ledgers.
- Journal: book where you record each business transaction shown on your supporting documents. You may want to keep separate journals for transactions that occur frequently.
- Ledger: book that contains the totals from all your journals, it organizes the different journal accounts.
For more record keeping information visit the IRS.
A single-entry system is based on the income statement (profit and loss statement). It can be a simple and practical system if you are starting a small business. The system records the flow of income and expenses through the use of:
- A daily summary of cash receipts
- Monthly summaries of cash receipts and disbursements
A double-entry system uses journals and ledgers. Transactions are first entered into a journal and then posted to ledger accounts. These accounts show incomes, expenses, assets, liabilities, and net worth. You close the income and expense accounts at the end of each tax year. You keep asset, liability and net worth accounts open on a permanent basis.