Accounting & Recordkeeping

For the individual just going into business, experience clearly indicates that an adequate recordkeeping system helps increase the chances of survival and reduces the probability of early failure. Similarly, for the established business owner, it has been clearly demonstrated that an accurate recordkeeping system increases the chances of staying in business and of earning large profits. It is practically impossible to negotiate for a business loan from a bank without properly prepared financial statements. It may even be difficult to secure credit in any form without statements. Bankers and other credit grantors need to study the business owner’s balance sheet and income statement in order to decide whether credit should be extended. Sometimes audited financial statements are required; the recordkeeping system must provide the basis for these statements. Requirements by federal and local government agencies of adequate records are as important as the management and credit importance of financial statements. The responsibility for maintaining records and proving their accuracy falls on the taxpayer. Federal and local income taxes, payroll taxes, sales taxes, personal property taxes, and an increasing number of other laws and regulations require certain reports which are easier to prepare and substantiate if the figures are organized by a good recordkeeping system. Records backing up government requirements must be available during the audit period. Record retention will depend upon the statute of limitations set forth by local and federal law. It is important to consult an attorney to determine the requirements of governing statutes. Due to the cumulative volume of required records, storage and retrieval can become burdensome. Many business owners are utilizing document scanning and electronic storage services to solve this problem. A number of “one-book” recordkeeping systems are available. Some are prepared with instructions and forms designed for specific kinds of businesses, while others are for small business use in general. Some trade associations, manufacturers and wholesalers offer specially designed recordkeeping systems to meet the general needs of a large variety of retail and service establishments. The owners of a business will often find it desirable to obtain specialized assistance to help them adapt such systems to their special requirements. There are several copyrighted systems providing simplified records, usually in a simplified record book. These systems cover the basic records with complete instructions for their use. The Small Business Administration (SBA) publication, “Record Keeping in a Small Business,” lists many of these systems. In order for a recordkeeping system to be useful it must be simple to use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis. To keep effective records you must be able to:
    • Identify the source of a receipt
    • Keep track of all deductible expenses
    • Figure depreciation allowance
    • Take advantage of capital gain and loss laws
    • Figure your earnings for self-employment tax purposes
    • Support items on your tax returns
              There are four basic types of records that most firms keep:
    • Sales records
    • Cash records
    • Cash disbursements
    • Accounts receivable
          If you do not have the necessary experience, it is recommended that you consider hiring a certified public accountant to develop your recordkeeping system. Public accountants also render other accounting services such as auditing, preparation of reports for government agencies, tax planning, analysis of financial reports and a variety of specialized management advisory services.

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