It is recommended that everyone in business make it a practice to keep accurate records. Keeping good records is very important to your business. Doing so will help you do the following:
Monitor the progress of your business
You need good records to monitor the progress of your business. 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 as it will enable the business to make informed decisions.
Prepare your financial statements
Preparation of accurate financial statements will require accurate records in the first instance. It’s like the old saying, “garbage in, garbage out”. The foundation of your financials rest on the accuracy of the information. These include income (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.
Identify sources of your income
You will receive money or property from many sources. Your records can identify the sources of your income. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.
Keep track of your deductible expenses
Unless you record them when they occur, you may forget expenses when you prepare your tax return.
Keep track of your basis in property
Your basis is the amount of your investment in property for tax purposes. You will use the basis to figure the gain or loss on the sale, exchange, or other disposition of property, as well as deductions for depreciation, amortization, depletion, and casualty losses.
Prepare your tax return
You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statement.
Support items reported on your tax returns
You must keep your business records available at all times for inspection by the IRS. 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.
User | 2/10/2017