It is essential for any business to keep all records regardless if it is for cost management tax or regulatory reasons, for legal reasons, or for the improvement of your business management . It is crucial to collect, store, and analyze data. Why is it important to keep your records? What is important to keep and how long should it be kept? Legally, It is an obligation to maintain proper records. Keeping proper records is the law. You must always Gable to provide Papa records which can’t be backed up. Fines, inspections, suspension of your business, and prison time may occur if you fail to provide adequate records. You are more likely to have record reviews and inspections if you are a contractor, work in the industries of plumbing, construction, or electric. Any legal association that your business is in will require you to have records.
What is Record to Report?
An accounting and finance Management process, Record to Report also known as R2R, is a process that provides accurate and timely information, relevant delivery and processing, and collection. Financial, strategic, and operational feedback is given by record to report to show the performance of the business. Insight and feedback is provided by the information which is then delivered to stakeholders so that they may decide whether a business’s performance is successful or if specific expectations are being met. It is extremely important where a proper and stable Record to Report process to be in place for a company. Are mission critical objectives to be in parade it is important to reduce the length and optimize enabling of cycle scarce financial resources. Decision making and analysis can be added with cycle completion. Cost reduction and value enhancement can be complete with a proper Record to Report cycle.
Processes For Proper Record Keeping
The most difficult year is usually the first year for small business owners. You must first decide what type of business you want and then learn to keep a proper business record. For small business owners, keeping bad records can lead to a downfall. Keeping track of receipts, tax returns and other records during the year can help you avoid frustration. Progress of your business can be seen by keeping proper records by showing what necessary changes are a needed, if there’s business improvement, and what products are being sold.
Estimated tax payment projection: you must project tax liability especially during the first year, so that tax payment estimates can be made. A method that many utilize for tax payments is estimate tax.
Financial statement preparation: for accurate financial statement preparation keeping good records is a necessity.
Identifying receipt sources: property and money can be received by various sources sources of receipts can be identified through your records. Personal and business receipts can be separated through this information as well as income that is taxable and non-taxable.
Deductible and expense track keeping: during tax return preparation, certain expenses may be forgotten if deductible expenses are not recorded. This is why it is important to keep a record recording system.
Tax return preparation: records must show proper credits, income, and expenses in order to prepare tax returns.
Supported items or tax return reports: records must be available for IRS inspections so your tax returns can go through a proper review. The items you report may need to have an explanation. Having separate records can make for a speedy process. You must keep certain records for at least 3 years or more. These records include the sale or purchase of a home, business and IRA rental properties, as well as stock transactions.
Advantages of Proper Record Keeping
Proper record-keeping can be valuable tax savings. Through proper record-keeping, finding multiple expenses can be easy. This allows the business to pay only what is necessary as well as collect all of their income. Tax auditors may have to make income decisions based on their best judgment without proper records forcing the auditor to base the audit on industry standards.. These decisions may include location, size, and business-type. The length of it audit can be short with proper record-keeping. By having proper records, the auditor can make a speedy and accurate audit. Proper record-keeping goes in compliance with the law and keeps businesses informed about their financial situation. It enables business owners to see where improvements and changes are need
Types of Records
Certain types of records need to be on file. These records may include: business expenses, credit card and bank statements, tax accounting records, payroll information, quarterly tax filings, inventory information, purchase orders, invoices, tax and accounting records, sales information and check information, as well as HR documents.
Emails, employment applications, and other business contact information is also important to document. Accident reports as well as licenses and permits is what’s your business needs to have should also be kept on file. Because of the data protection act, established in 1988 to 2003, you have the obligation to securely store personal information which can be provided by request only.
How Long Should Recorded Information be Kept?
A business should never have any excuse to not possess information indefinitely, as data retrieval and storage costs are decreasing. It is important for you to keep information at least 3 years or more after recording the information.
In conclusion, it is extremely important to maintain proper records when running your business not only for data and storing records but also to analyze information.