Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Everyone in business must keep records. Keeping good records is very important to your business. Good
records will help you do the following:
- Monitor the progress of your business.
- Prepare financial statements.
- Identify source of receipts.
- Keep track of deductible expenses.
- Records can show whether your business is improving, which items are selling, or what changes you need to make.
- Good records can increase the likelihood of business success.
- You need good records to prepare accurate financial statements. These include profit and loss statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
- The profit and loss statement shows the activity of your business for a given period of time.
- A balance sheet shows the assets, liabilities, and equity in your business on a given date.
- You will receive money from many different sources. Your records can identify the source of your receipts. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.
- You may forget expenses when you prepare your tax return, unless you record them when they occur.
- You need good records to prepare your tax return. These records must support the income, expenses you report. Generally, these are the same records you use to monitor your business and prepare your financial statement.
You must keep your business records to support any audit by a government agency. If the IRS 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.
Recordkeeping cannot make you money, but it can keep money from walking out your door!