Basic Business: Good Record Keeping

Wild Bill Montgomery 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.

Let's Start Now:

Make sure you monitor the 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 the 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 the income
and expenses of the business for a given period of time. A balance sheet
shows assets, liabilities and your equity in the business on a given date.

Identify source of receipts: You will receive money or property from many
sources. Your records can identify the 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 the deductible expenses you can find.

Prepare your tax returns: Records must support the income, expenses and
credits you report on your tax returns. Generally, these are the 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 the IRS and/or your State Department of Revenue. If the IRS or
State Department of Revenue examines any of your tax returns, you may be
asked to explain the items reported. A complete set of records will speed up
the examination and make the experience feel that much less like a rectal
exam.

What kind of records should you keep?

Except in a few cases, the 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 the 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 the 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 the information you must record in your books.

It is important to retain these documents because they support the 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 the
expense as "office supplies", then the receipt should be placed in a folder
marked "office supplies".

Gross Receipts are the income you receive from your business. You should
retain supporting documents, which show the 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 the items you buy and resell to customers. If you are a
manufacturer or producer this includes the cost of raw materials and/or
parts purchased for making into finished products. Your supporting documents
should show the 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 the value of your inventory at the end
of the year.

Expenses are the costs that you incur to carry on your business. Your
supporting documents should show the 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
the cost of taking a client to lunch, you should record the name of the
client, the purpose of the lunch and topic discussed at the lunch.

Assets are the 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 the annual depreciation and
gain or loss when you sell the assets. Your records should show when and how
you acquired the asset. Also include the 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 the asset, when
and how you disposed of the asset, selling price and any expenses of the
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 the
your financial survival. So take the time and keep good records. The
headaches you save may be your own.

Thanks for reading

About the Author

Wild Bill Montgomery
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