Why keep records?

Everyone in business must keep records. Good record keeping habits will increase the likelihood of your business succeeding by helping you do the following:

• Monitor the progress of your business
• Prepare Financial Statements
• Identify sources of receipts (income)
• Keep track of deductible expenses

• Support items reported on tax returns

What kinds of records should I keep?

Except in a few cases, the law does not require any special kind of records. You may choose any record keeping system suited to your business that clearly shows your income. Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checkbook or credit card is the main source for entries in the business books.

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 need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return.

The following are some of the types of records you should keep.

• Gross receipts

Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.

• Purchases

Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products.

• Expenses

Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense.

•  Assets

Assets are the property that you own and use in your business, such as machinery and furniture. You need records to figure the annual depreciation and the gain or loss when you sell the assets.