Record keeping has numerous advantages for businesses of all kinds and sizes. Irrespective of the bookkeeping and accounting system, the result will always be good should one keep the records. The summary of business transactions will help you know your spending and business expenses. Moreover, they can be of assistance during auditing and paying federal taxes. The summary recorded in business books must reflect the gross income and expenses. We will elaborate on why record-keeping is essential for any business, along with the effective tips for doing it. Walk with us to know more!
Documents you need to keep:
Now, the question is, what documents are essential to be kept safe? Business entities conduct countless transactions over a month or year. How would you remember all these transactions with the exact dates and amounts? Keeping records will help in this matter. Following are some of the documents or records you should keep safe for business purposes.
i) Gross receipts:
Gross receipts are documents that reflect the income amount your business has received over a particular accounting period. Moreover, these documents also show the income sources, which ultimately resolves the puzzle for paying tax. Gross receipts for any business entity should include the following.
- Receipt books
- Cash register tapes
- Deposit information (cash and credit sales)
As a business owner, you may not pay attention to these documents, but keeping them will do you good. The best way is to hire professional bookkeeping and accounting firms in Dubai and let them do the job for you.
Supporting documents for purchases are necessary to understand business expenses and spendings. These documents reflect the date of purchase, the payee, the amount paid, and the item’s description. Manufacturing businesses will keep these records when they buy raw materials for production. Supporting documents for purchases include the following.
- Credit card receipt and statements
- Cash register tape receipts
- Canceled checks
- Documents reflecting payment proof
Business entities incur various costs other than purchases which fall under the expenses category. You should have enough documents stating that the cost/expense was incurred for business purposes. Same as the purchase, the supporting expense documents should include payee, payment, date, and item description. They include:
- Canceled checks
- Account statements
- Credit card receipts and statements
- Cash register tape receipts
Keeping information and records to verify your business assets is necessary. Calculating the capital gain, capital loss, or annual depreciation of assets would be incomplete without these documents. They must include the following:
- Purchase cost
- Cost of improvements
- Deduction taken for depreciation
- Deductions taken for casualty losses
- How the asset was used
- Asset disposal
- Selling price
- Expense of sale
- Purchase and sales invoice
Tips You Should Follow for Records Keeping:
Small businesses often claim deductions when it comes to tax paying, but the authorities sometimes disallow the claim. Do you know why? They don’t have sufficient records or receipts to claim the deductions. Keeping business records and receipts will help, but only when kept in the right and proposed way.
Record keeping tips are something everyone is longing for these days, and you should also pay attention to them. Not only will these tips help you at tax payment time but also auditing. Following are a few useful and effective record-keeping tips you must follow to stay on the safer side.
i) Keep all receipts:
Your business should have a systematic process of filing and keeping all the business records. Doing so will expose you to various advantages like time-saving, tax benefits, and auditing assistance.
ii) Make a note on receipts:
Suppose you have a receipt, but you can’t recall the business purpose because it was 2015. What good will such a receipt do you? None! It would be best to note receipts stating the purpose and extra expenses you incurred during the process.
iii) Keep receipts at least six years:
It is a commonly asked question about how long the records should be kept? Well, the IRS often asks for business documents for as long as six years. It would be best to keep records for six years. Moreover, you can also upload them to your drive if the paper documents are too old to read.
iv) Ask for emailed receipts:
Most businesses often misplace receipts and can’t find them when needed. You better ask the vendor to email the receipt to your or your company account to avoid this. Doing so will keep the receipt safe and easily accessible when the authorities ask for it.
v) Automate your record keeping:
Nothing can beat this point, and it cannot be understated at any point. Automating your bookkeeping and accounting system would help you keep all the business records safe and easily accessible. The more advanced technology and accounting system you use, the better results will be!
All these tips are useful when it comes to keeping supporting and business documents safe. However, these techniques won’t come easy since they take some skills and knowledge. It is better to hire expert bookkeeping experts to keep the records safe and accessible.
Benefits of Effective Record Keeping:
As discussed, effective record keeping and accounting will expose your firm to countless benefits. Some of them are long-term and will show up at the time of auditing and tax payment. Following are these advantages discussed shortly.
i) Business progress monitoring:
Keeping records will help you better examine your business operations. Are you improving? Which items are sold out, and what stock do we need currently? All these provisions will help you design better accounting strategies.
ii) Financial statements preparation:
You can’t prepare a formal financial statement without having sufficient business records and payment proofs. Be it an income statement or a balance sheet, and the entire data relies upon an effective record-keeping system.
iii) Track deductible expenses:
Small businesses often need to claim a deduction at tax payment time. The authorities will disallow the claim if you lack sufficient receipts and business records. Having these supporting documents will help you keep track of deductions and claim them when needed.
iv) Tax returns preparation:
Preparing a snapshot of your tax year will help you monitor your tax provisions. However, it would be best to keep receipts safe effectively since they can help prepare tax returns.
Streamline your Business Records with Accounting Experts!
Accounting activities and uplift your business by a fair bit, and you need to understand it. Keeping aside all the complexities, you need to join hands with accounting professionals and let them worry about these complexities. Consider contacting them today for a better business environment!