Record keeping is a process that everyone in businesses cannot ignore. Keeping good records is important and will help you with the following:
- Monitor the progress of your business
- Prepare your financial statements
- Identify sources of your income
- Keep track of your deductible expenses
- Keep track of your basis in property
- Prepare your tax returns
- Support items reported on your tax returns
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 record keeping can increase the likelihood of business success.
Prepare Financial Statements
You need good records to prepare accurate financial statements. 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.
- An income statement shows the income and expenses of the business for a given period of time.
- A balance sheet shows the assets, liabilities, and equity in the business on a given date.
Identify Sources 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 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 out 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 Tax Returns
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 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.
Contact O’Brien & Associates For Assistance
Our agency keeps all statistical data in our in-house computer and can provide reports upon request by contracted parties. If this is something that interests you, please contact us at 800-225-9947 or fill out our form here.