Bookkeeping: Taking Care of Business
A privately held business, whether it consists of 1 employee or hundreds, should keep good, timely, records. It is does cost time and/or money to do this, but it can cost a lot more to not keep good records. Here is a quick Q&A on the subject:
- Why is it important to keep good records?
- Good records are needed to prepare financial statements.
- They help identify income sources and keep track of expenses.
- They make it easier to prepare and plan for taxes.
- They can help you monitor your business and make decisions based.
- What kinds of records should a business keep?
- Generally, a small privately held business should have a system in place to keep track of income and expenses.
- In addition, businesses should track anything on the balance sheet, such as loans or notes payable and equipment being depreciated.
- Some businesses are required to keep track of specific items based on their industry. (Example: Cannabis industry) If you have questions about what records should be kept, please feel free to contact us at Elias Strauss CPAs, LLC.
- How long should I keep records?
- The IRS generally advises that small businesses keep records for 3 years. At Elias Strauss CPAs, LLC, we scan and save records for our clients from the time they start with us.
- Any other reasons to keep accurate records?
- Burden of proof- The IRS puts the responsibility to validate information on tax returns on the business owner. In other words, in order to deduct an expense, you have to prove it. Good records can help in this area.
- Accurate records allow for a business owner to have accurate and timely information and allow for management decisions to be made easier.
- What does it cost to keep good records?
- Costs range in terms of time and money. A business owner can do everything themselves to save money, but sometimes this turns out to be expensive in terms of time and the cost to prepare and plan for taxes.
- Many business owners use accountants to maintain the books or at least review them periodically. This is a good way to keep accurate records while ultimately saving time and money.
Keeping timely and accurate records is important. Having a good relationship with your accountant is important, as well. Business owners should talk to their accountant about bookkeeping and make sure they understand the financial statements and journals and how to use them efficiently. If you know a business owner or are one and don’t have that type of relationship with your accountant, let us know and we would be happy to help.