The Importance of Keeping Records
Keeping good notes is a vitally important aspect of running any business, no matter how big or small it may be. Even if you're running a part-time enterprise, having a reliable paper trail is prudent. Should you someday sell your business or ever need to look at its past performance, you will have data to reference.
There are a number of other practical reasons for maintaining good records. They will allow you to monitor how you are performing over a long period of time and make preparing financial statements much easier. Filing accurate tax returns virtually demands that you take the time to keep a ledger, and gives you the support needed for items you end up reporting on those returns.
The IRS requires that businesses have their records available at all times. If they examine your tax returns and decide an inspection is necessary, you need to be able to explain the items that you've reported. Having a reliable set of records will help expedite the process and make it much easier to do so.
Generally, there is no required method of recordkeeping, so whatever is best for you and your business will be fine. However, it's important to be organized, especially for the purposes of federal taxes.
Supporting business documents include sales slips, receipts, bills, checks and invoices, and should all be kept in your books. Holding onto these documents is important because they provide the support you need should the IRS ask where your numbers are coming from. The most effective method is simply creating a separate file for each year and dividing it into the appropriate sections.
It is a good idea to get into the practice of documenting business transactions as they take place. This will help you avoid running up a backlog of paperwork that can be very stressful when tax time rolls around. Create a paper trail for every decision and purchase made. Any significant decisions made should be officially documented with dates and times. Once you have a system in place, your next duty is to ensure it stays up to date. As long as you are diligent about immediately updating your records with every happening in your business, this will prove to be a fairly simple task.
The importance of keeping records.
||The length of time your records should represent depends on a few factors, primarily how long it is until a given document is no longer needed. That is, the period of time until you can no longer use the document to amend a tax return or the IRS can no longer assess an additional tax. Generally, if your taxes are in good standing, you only need to hold on to copies of your tax returns for three years.
Purchase some three-ring binders that you can use to stay organized. Once you have determined what you are going to need to file, it is a good idea to maintain two separate collections. One should be used for official records - what is required by the state for you to maintain your corporate status - and another should hold everything else. Visit your Secretary of State's website to find out what you need to keep in the books.
Your method of documenting business transactions is up to you, but a good recordkeeping system will provide summaries in the forms of a journal and ledger. A journal is where you record each business transaction as it occurs, while a ledger is a summary of all of your journals.
The following are standard items that every entrepreneur should have on hand: business checkbooks, daily and monthly summaries of cash receipts, a check disbursements journal, a depreciation worksheet and employee compensation records. When combined, these documents provide an adequate financial insight into your business's workings. Should the IRS ever need to ask you about one aspect of your work, you will most likely be able to find what you need in these records.
Hiring a professional accountant can remove a lot of the pressure that goes into running a beading business. If you find yourself often concentrating on sales, marketing and day-to-day operations, an accountant can help you set up a basic recordkeeping system that will work for your business. Although you can fairly easily handle the daily requirements of maintaining necessary documents, you should leave more complicated tasks like tax returns and financial statements to a professional.
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