Record keeping implies the system of maintaining business records and documents. This helps in quick and easy retrieval of the same for accounting use. Good record keeping is essential for the health of your business. It is also mandatory by law to maintain accurate financial records. Every business must endeavor to have good record keeping systems in place.
Generally, it includes Accounts Receivable, Accounts Payable, Petty cash, payroll, inventory, and transaction records.
Here is why good record keeping is crucial:
Monitoring the financial health of your business: It is important that at any given point in time, you must know how your business is doing. This is possible only when you maintain correct and accurate financial records. Then you can check if your products are selling, what your profits are and judge your cash flow situation. You can also do better planning for the future based on your past performance.
Preparation of financial statements: Good record keeping helps you prepare reliable financial statements like Profit and Loss Statement, cash flow statement, income statement, balance sheet and others. These financial statements are the spine on which your tax compliances as well as financial planning rest.
Projections: You use your financial records to budget for a financial period. Thus, you forecast your cash requirements and expenditures. Budgeting helps keep your business on track and is very important for future planning.
Control: With the help of reliable financial records, decision making and business strategizing is done. Financial records provide the control to make effective changes that can keep the business running smoothly.
Taxation: You need accurate financial records that you maintain using good bookkeeping systems to prepare your tax returns. Your accountant will need reliable financial records to ensure that your taxes are done in time and that you save money due to you via deductibles. This is only possible if your records are maintained properly. Good records prevent you from underpaying or overpaying your taxes. In addition, if you ever have an IRS audit, you will need to have impeccable record keeping to clear that audit.
Compliance: If you have employees, you need to be aware of compliances related to payroll taxes. You need to deposit these taxes with the authorities on time in order to avoid penalties. You also need to provide W-2 to your employees with the details for their tax filing. The backbone of these compliances is good record keeping.
Financing: You can apply for bank loan only if you have your balance sheet, Profit and Loss account, income statement etc. in place. You need to maintain these records not only for the current year but also for the past years as well to verify that your business is sound and run professionally.
To summarize, it is absolutely imperative that you build a sound record keeping system that is simple, easy to use, consistent and reliable. If you need help with your record keeping, please drop us a mail.