What is record-keeping and why is it so important? Today, we’ve listed seven reasons why every business should incorporate some form of record-keeping into their business plan.
- Monitor your business’ progress. Keeping records helps determine what products are selling, what changes need to be made, and whether your business is improving.
- Prepare your financial statements. Good record-keeping allows you to prepare the appropriate statements. This includes income and balance sheets as well as cash flow statements. These statements help when dealing with your bank or creditors and help to manage your business.
- Identify your sources of income. Chances are you will receive your income from more than one source. Records help keep track of what money comes from where, and they also separate business from non-business receipts and taxable from nontaxable income.
- Track deductible expenses. Keeping track of expenses made while running your business in real-time can often be a demanding task which makes record-keeping all that more important for your tax return later in the year. It is always good to automate as much of this process as possible.
- Track your basis in property. Basis is the general amount of investments you’ve made in property for tax purposes. It’s used to determine the loss or gain on the exchange, sale, or other disposition of property amongst other things.
- Prepare your tax return. Having good records eases the process of preparing your tax return; good records support the income, expenses, and credits you report and are typically the same records used to monitor your business and prepare your financial statements in general.
- Support items on your tax returns. Occasionally, the IRS may ask for additional documents to support the items listed in your tax return. These documents can be sales slips, invoices, paid bills, and more. Having these documents organized and readily available can be important in an audit.
Record-keeping helps keep track of transactional details for your business’ future success and for accurate tax returns. There are different accounting systems you can implement today; it’s important to choose the right one for your business. To learn more about how to start record-keeping and the right system for you, contact L.V. Browne, CPA. Schedule a free consultation today here: calendly.com/brownecpa.
“Good recordkeeping is just good business.” Internal Revenue Service, 7 November 2019, https://www.irs.gov/newsroom/good-recordkeeping-is-just-good-business. Accessed 13 June 2022.
“Why should I keep records?” Internal Revenue Service, 15 March 2022, https://www.irs.gov/businesses/small-businesses-self-employed/why-should-i-keep-records. Accessed 13 June 2022.