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The Importance of Good Record Keeping

With all the legal and tax obligations required of entrepreneurís, it's imperative to keep careful records. A  good record keeping system will help you keep your business growing, help you prepare important financial statements, and help you satisfy local, state, and federal business reporting requirements.

There is no special record keeping system required or approved by the IRS. At a minimum, though, your records must clearly show your business income and summarize transactions through original and supporting documents.

To keep track of business transactions, you need to record them, usually in specialized books called journals, ledgers, or record keeping systems. Record keeping is all about tracking the numbers.

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Your record keeping system needs to be backed up by sales slips, invoices, receipts and canceled checks. If you are audited by the IRS, you may have to show evidence of claims on your business tax return. Supporting documents should be organized and easy to find. Check with an accountant or the IRS for record retention requirements.

While entrepreneurís can often handle the day-to-day bookkeeping themselves, most are advised to let an accountant handle complicated tasks such as preparing tax returns and financial statements.

The first step in being a good entrepreneur is keeping good, accurate records and establishing a sound record keeping system. Too often, there is a misconception that a person needs records so that he or she can report their taxes. However, record keeping plays a much larger role in business. Remember, you are in business and records can be helpful in planning improvements for that business.

Record keeping information provides the basis for the preparation of financial statements used in analysis and monitoring the progress of the business. A record keeping system should be: (1) easy to keep, (2) provide the necessary information, and (3) provide the information when needed. Good record keeping can be useful when developing sound marketing plans, budgeting, loan applications, and reports to lenders.

When choosing the right record keeping system, remember decisions made can be no better than the information used to make them. A good record keeping system is one that will provide the necessary information and provide the information when needed. It will furnish the necessary information for understanding the activities of your business operation.   


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