Why You Should Keep Good Records

Recordkeeping is the orderly and disciplined practice of storing business-related documents

• A system that allows you to collect information about your business activities, access it when needed, summarize it for reporting, and analyze it for business decision making
• One of the most important responsibilities as a small business owner
• A business’s success depends on creating and maintaining an effective record system
• The importance of measurement: To manage a business you must be able to measure activity
• Helps with detailed tracking of revenues and expenses, planning, legal compliance, and tax return preparation (federal, state, and local)

Audience for Your Records & Reports: #

• You, so that you can carry out operations, prepare periodic reports, and file income tax returns
• Partners or investors so that financial statements can be prepared and financial positions and results of operations can be monitored
• Bankers so that loan applications can be reviewed and loan servicing can be monitored
• IRS and state authorities so that tax returns and other tax-related documents can be prepared and issued

Accounting Software: #

• Complete financial recordkeeping system
• Allows for recording and posting all the transactions of your business, with a preset or easily adapted chart of accounts
• Automatically generate reports and graphs, such as balance sheets, profit and loss statements, and cash flow statements
• QuickBooks is most popular for small businesses
  • Desktop system with files residing on the computer’s hard drive
  • User must back up and protect data
• Subscription solutions (e.g., QuickBooks Online)
  • Accounting software that is hosted on remote servers
  • Data is processed and stored in the cloud
  • Password protected with automatic backup of data
  • Access real-time data from anywhere with an Internet connection––Access from any device, including laptops, smart phones and tablets
  • Routine maintenance and updates to the software are managed by the SaaS (Software as a Service) provider

Accounting Records: #

Accounting records take many forms: source documents, journals, ledgers, trial balances, and financial statements

• Evidence of a business transaction
• Important starting point of the audit trail
  • An audit trail can be either a paper- or digital-based trail showing a documented history of a transaction
  • An audit trail allows an auditor to follow the financial data from its original creation or source document (invoice, receipt, voucher, etc.) to the general ledger
• Examples of source documents:
  • Invoices
  • Other evidence of income, such as copies of checks, receipts, and bank statements
  • Expense documentation
    • Canceled checks that identify the payee, amount, and proof of payment/electronic funds transferred
    • Cash register tapes
    • Account statements
    • Credit card receipts and statements
    • Invoices
    • Petty cash slips for small cash payments

Record Retention Schedule: #

Record retention guidelines recommended by the US Small Business Administration