How to Keep Business Finance Records

Good record keeping is part of running an organized and well-managed business.

Business records help prepare financial statements and tax returns, keep track of sales and expenses and provide supporting documentation for audits. Records can be kept in journals, which record each business transaction; in ledgers, which organize the journal entries into accounts; in financial statements (income statement, balance sheet and cash flow statements); in files and storage boxes; and in computer hardware and software systems.

Things You'll Need

• Files and filing cabinets
• Storage boxes
• Compact discs and flash memory cards

Instructions

1. Record sales receipts and expenses when they occur, ideally on a daily basis. Do not put it off, because you may miss certain transactions. Identify the sources of receipts and the destinations for payments. Write short memos outlining the purpose --- for example, "fax machine purchase."

2. Enter business transactions in journals, ledgers, checkbooks, worksheets and salary records. These are available at office supply stores and online. The actual record-keeping system will depend on the complexity of your business. For example, if you are running a management consultancy from your home office, a business checkbook, credit card receipts and a file containing your client invoices will probably be sufficient. Use software applications --- for example, Microsoft Excel, Intuit QuickBooks or Sage Peachtree --- to automate and simplify some of the record keeping.

3. Maintain supporting documents because you might need them for an internal financial audit or an Internal Revenue Service audit. These documents include sales slips, invoices, deposit slips, bank and credit card statements, canceled checks and electronic transaction records stored on computer storage devices, such as compact discs or flash memory cards.

4. Keep documents for as long as they are required. Maintain business records that support tax return filings until the period of limitations runs out. For example, keep records of employment taxes paid for at least four years, including the amounts and dates of all wage, annuity and pension payments; and employee and contractor information (such as names, addresses and Social Security numbers). Some records should be preserved permanently, such as articles of incorporation, patent applications and annual financial statements (see Resources).

5. Store records in a safe place in clearly labeled boxes. Organize them by year and type of income or expense. Implement a backup and retrieval system for electronic files so you do not lose any information in case of system failures. A simple backup system might involve copying the relevant files onto a flash memory card or backup hard drive at the end of each business day.

References

• Internal Revenue Service: Why Should I Keep Records?
• Internal Revenue Service: How Should I Record My Business Transactions?
• Internal Revenue Service: What Kind of Records Should I Keep?

Resources

• Internal Revenue Service: How Long Should I Keep Records?
• Internal Revenue Service: Employment Tax Recordkeeping
• Bankrate: What Financial Records to Keep and How Long to Keep Them