Start A Business

Step 11: Kinds of Records to Keep

Except in a few cases, the law does not require any special kind of records. You may choose any system suited to your business that clearly shows your income.

Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. In addition, you must keep supporting documents, explained next.

Supporting Documents: Purchases, sales, payroll and other transactions you have in your business will generate supporting documents such as invoices and receipts. These documents contain the information you need to record in your books.

It is important to keep these documents because they support the entries in your books and your tax return. You should keep them in an orderly fashion and in a safe place.

Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Keep these documents by year and type of income or expense.

Gross receipts: Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Examples of documents that show gross receipts include: cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips, and Forms 1099-MISC.

Purchases: Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for purchases. Examples of documents for purchases include: canceled checks, cash register tape receipts, credit card sales slips, and invoices. These records will help you determine the value of your inventory at the end of the year.

Expenses: Expenses are the costs you incur (other than purchases) to carry your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Examples of documents for expenses include: canceled checks, cash register tapes, account statements, credit card sales slips, invoices, and petty cash system for small cash purchases. A petty cash fund allows you to make small payments without having to write checks for small amounts. Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment.

Assets: Assets are the property, such as machinery and furniture, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to figure the annual depreciation and the gain or loss when you sell the assets.

Your records should show:

1. When and how you acquired the asset
2. Purchase price
3. Cost of any improvements
4. Section 179 deduction taken
5. Deductions taken for depreciation
6. Deductions taken for casualty losses, such as fires or storms
7. How you used the asset
8. When and how you disposed of the asset
9. Selling price
10. Expenses of sale

Examples of supporting documents that may show this information include:

Purchase and sales invoices
1. Real estate closing statements
2. Canceled checks