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Navigating small business bookkeeping and recordkeeping can be a daunting task for many business owners. However, a well-structured financial system is vital to the growth and success of your business. In our latest blog article, we deep dive into bookkeeping and recordkeeping, explaining their roles in business operations and the benefits they can have on your small business. You might be asking: What's bookkeeping? How can I keep records for my small business? What type of records should I keep? Do I need to save all business expense receipts? How long should I keep business documents? We've got answers to these questions and more. Continue reading so you can turn that financial confusion into clarity!

What Is Bookkeeping?

Bookkeeping is a method of tracking funds and business documents 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 business expenses, payroll records, employee records, revenue, and taxes.

How Do I Keep Books for a Small Business? 

There is a relatively simple method that you can implement in financial record keeping 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 and most (if not all) financial transactions. 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 an accounting software program or other forms of financial record keeping, 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.

Gross Receipts Documents: 

  • Cash register tapes 
  • Deposit information (cash and credit sales) 
  • Forms 1099-MISC
  • Invoices 
  • Receipt books

Financial Statements: 

  • Canceled checks or other documents proving payment/electronic funds transferred 
  • Cash register tape receipts 
  • Credit card receipts and statements 
  • Invoices

Expense Documents:

  • Bank 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 business receipts for at least three years. This time frame includes the potential for IRS audits, 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 Professional Accounting Services

Bookkeeping can help your company track various categories of expenses, income, and tax payments. With your bookkeeping needs, it may be wise to consider reaching out for small business accounting services. Don’t hesitate to seek advice from experts to guide your small business on a path to business success.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.