There are two reasons to keep records of your business:

• They are useful to you as a manager
• They are required by law

They must clearly show income, deductions, credit, employee information and anything else required by federal, state, and local regulations. Records must be kept to work out the  tax liabilities of your business. The records must permanent, accurate and complete.

From a managerial standpoint, maintaining accurate records is vital to the day to day operation of your business. Information about the financial condition of your business helps your identify and correct any income or expenditure problems before they get out of hand. When developing a record keeping system, your goal is to keep it as simple as possible to save time. There are two basic types of records that your required to maintain:

1. Sales Records

Sales records include all income derived from the sale of products or the performance of services. They may be grouped into one large category call gross sales, or divided into several sub-categories of different types of services or products. This record will help you to know what's doing well and what isn't.

2. Purchase and Expense Records

Purchase and expense records are sometimes referred to as disbursements or accounts payable. If possible all disbursements should be made by check so that business expenses are well documented for taxation purposes. If a cash payment is necessary, a receipt for the payment, or at least an explanation of it, should be included in the business records. For IRS purposes, you will need a 'tax invoice.' All documents which substantiate entries in the business records should be filed in an orderly manner and stored in a safe place.

3. Other Records

All relevant documents for the purpose of proving taxable income and expenditure and documents containing particulars of any election, estimate, determination or calculation of your taxation commitment must be kept. Under the self assessment system these documents do not have to be lodged with tax returns, but need to be available if the IRS conducts and audit. Records must be kept for 3 years.

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Last modified: 09/04/08