Record Keeping
Kate Smalley discusses the importance of record keeping
within any organization. Learn about bookkeeping methods
and what kinds of records you need to keep.
The Basics of Business Record Keeping
As a business owner, you may rely on an outside accountant to
do your taxes and prepare financial statements. However, it's
best that you or someone in your organization take on the responsibility
of keeping an accurate set of financial records.
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Keeping good records yourself, no matter
how unpleasant it may seem, will minimize the costs of paying
an accountant and allow you more control of your financial
information and operations.
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Maintaining good records can also help you avoid headaches at
tax time by keeping track of your receipts and other records throughout
the year. This can help you remember the various transactions
you made during the year so you can properly document and maximize
your tax deductions.
Normally, tax records should be kept for three years, but
some documents - records relating to a home purchase or
sale, stock transactions, IRA and business or rental property
- should be kept longer.
Good record keeping not only enables the IRS to evaluate
your business activity through original and supporting documents,
but it also gives you the information you need to properly
manage and grow your business.
You can keep track of your business transactions by writing
them down, usually in books such as journals or ledgers
or by typing them into a computer software program. It's
best to choose a system that's simple, yet can be changed
to meet your needs in the future. An accounting system should
show your income and expenses and can be easily understood,
especially by you. If you have more than one business, it's
best to keep completely separate books for each type of
business activity.
The two basic types of bookkeeping methods are single entry
and double-entry systems. Whether you choose to keep a written
ledger or use computer software, record only the information
that needs to be documented.
Single-Entry Bookkeeping
Single-entry bookkeeping uses a cash receipts journal, a
cash disbursements journal and also the use of a checkbook.
All business transactions are recorded in one of these journals.
It is a practical bookkeeping system for small businesses
that are just starting.
The cash receipts journal should contain a record of all
the money that you receive. It should contain a column for
items such as date, amount, and source of payment, the reason
for the payment or anything that is of importance to your
bookkeeping and of relevance.
Document the money that your small business spends in a
cash disbursements journal. It should have columns for the
various expenditures that your small business may have with
a line for each expenditure, including description of expense,
date, payee, check number and total amount.
Double-Entry Bookkeeping
As your business grows, you may need to adopt a double-entry
bookkeeping system. This system provides more information
to paint a more complete picture of your business at any
particular point in time. This information may include available
cash on hand, accounts payable, utilities, loans, etc.
Your small business should use a double-entry bookkeeping
system if has significant accounts receivable, accounts
payable, equipment that depreciates or inventory. If your
business will meet any of these, you should select a double-entry
system from the start. You'll use journals and ledgers to
record information that reflect your business transactions.
Each transaction will be recorded twice, meaning the system
will balance itself out. For example, if you make a loan
payment, you will decrease the cash amount in your cash
account and increase the exact amount in the expense account.
What Type of Records To Keep
The type of business you operate generally affects the type
of records you need to keep for federal tax purposes. You'll
need supporting documents to capture important details,
such as your receipts, purchases, expenses, assets.
Here are some other basic record keeping tips to keep in
mind:
"Daily business records are the best
"Identify source of receipts
"Record expenses when they occur
"Keep complete records on all assets
Remember, good record keeping is essential to the financial
survival of your business. So take the time to keep good
records, so you can run your business successfully - instead
of it running you.
About the Author
Copyright 2005
Kate Smalley, Connecticut Secretary
Freelance Secretarial and Transcription Services
http://www.connecticutsecretary.com
kms@connecticutsecretary.com
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