Bookkeeping often confuses many business owners. It is not typically associated with the idea of business operation. However, bookkeeping, recordkeeping, and their intricacies can yield significant benefits for small business owners. Here is what you should know about bookkeeping and recordkeeping, and why you may consider implementing both into your small business.
What Is Bookkeeping?
Bookkeeping is a method of tracking funds that flow in and out of your small business. There are two types of bookkeeping: single-entry bookkeeping (for transaction entries only) and double-entry bookkeeping (for transaction entries and company cash flow). As you track your funds, you’ll compile categories, including expenses, payroll, revenue, and taxes.
How Do I Keep Books for a Small Business?
There is a relatively simple method that you can implement to keep books for your small business with just two binders. One will contain documents required within your state, such as licenses and permits. It would be best if you keep the following in the official binder:
- Articles of Incorporation or Articles of Organization
- Certificates
- Company seal
- Meeting Minutes
- Resolutions
The second binder will contain daily records. Keep the following in your daily records binder:
- Accounting records
- Applications and permits
- Contracts entered by the company
- Insurance policies held by the company
- Membership certificates
- Names and addresses of all members or shareholders
- An operating agreement or by-laws and any amendments
- Share transactions
- Shareholder interests
- State filings (such as annual reports)
As your business decides what it will implement over time, attempt to record everything in print. Divide the above sections into specific areas in your binders to remain organized. It is important to note everything, whether it’s formal and official (meetings and minutes) or unofficial (daily activities). You should also date the records for even more accuracy.
What Kind of Records Should a Small Business Keep?
Whether you are using a software program or other form of, it is essential to know what kind of records you should keep. Keep receipts that pertain to expenses, gross receipts, and purchases to track your small business’s debits and credits, along with its income.
You should keep gross receipts documents such as:
- Cash register tapes
- Deposit information (cash and credit sales)
- Forms 1099-MISC
- Invoices
- Receipt books
You should keep purchases documents such as:
- Canceled checks or other documents proving payment/electronic funds transferred
- Cash register tape receipts
- Credit card receipts and statements
- Invoices
Finally, you should keep expense documents such as:
- Account statements
- Canceled checks or other documents proving payment/electronic funds transferred
- Cash register tape receipts
- Credit card receipts and statements
- Invoices
Do I Need Receipts for Business Expenses
While you do not need receipts for filing taxes or proving business expenses, small business owners can still benefit by keeping receipts. This will facilitate decreasing your tax liability, or the amount you’ll owe in taxes. Some receipts can cause tax deductions, allowing you to save when it is time to file taxes.
You’ll need receipts related to:
- Bills for a product or service
- Meals and travel
- Other items such as bonds, depreciated equipment, real estate, and stocks
The IRS doesn’t require receipts for business expenses that cost under $75 except for lodging. If you use a Schedule C Form for your business to deduct health insurance premiums, you don’t need a receipt. Provided that you save the receipts and you don’t lose them, you’ll have a better chance to receive deductions and even reimbursements for your business expenses.
How Long Do You Have to Keep Business Documents?
You should keep documents and receipts related to your business for at least three years.
This time frame includes the potential for audits from the IRS, which is why you should save all of the documents and receipts that you need. Also, that time frame increases to six years if the IRS suspects that you underreported your income.
Work with a Professional
Bookkeeping can help your company track various categories of expenses and income. With your bookkeeping needs, it may be wise to consider reaching out to an accountant. Don’t hesitate to seek advice from the experts to guide your small business through this global crisis.
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