Continuation from: The Importance of Record-Keeping: The Tax Perspective
Because record-keeping is so crucial to almost all aspects of a business, what is the preferred way of keeping records? Generally, any records system is acceptable as long as it clearly identifies your business income and expenses. Here are some useful record-keeping tips that can help you in the record-keeping for your business:
Daily updates keep you from being buried under a mountain of paperwork at the end of the month or at the end of the financial year. In addition, updating your business records daily allow business owners to identify outgoings and receipts more precisely when the information is still fresh in their memories than if less regular records are kept. For example, can you remember which customers you had lunch with last Friday?
Maintain Separate Bank Account For Your Business
Many business owners do not maintain a separate bank account for their business and instead, use their personal bank account for their business. It is recommended that you open a separate account for your business to deposit all business-related receipts and issue cheques for business-related expenses from this account
Although it is not legally required for a sole-proprietor or partnership business to open a business bank account, doing so will provide the following important benefits:
- It will be easier for you to keep track of your business income and expenses
- Your business account will clearly separate your business from personal finances which will be very useful in the event of a tax audit by the Inland Revenue Board.
- By maintaining separate account for your business, you will demonstrate to the Inland Revenue Board that you have a systematic approach to your business and will make your claims for business deductions through this business account appear more legitimate and credible.
Maintain A Separate Credit Card
Another method to provide better tracking and recording of your business expenses is to maintain a credit card solely for your business purposes only. By doing so, you will avoid the hassle of having to separate business-related expenses from your each and every credit card statement. Although the monthly credit card statement is also considered proof of payment, you will still need to keep the original invoice and credit card charge slips as evidence as well. Simply jot down the business purpose of a particular purchase at the back of the invoice or charge slip and with other relevant information.
File Documents Under Proper Headings
Supporting documents are a base for small business record keeping. Such documents include invoices, receipts, sales slips and paid bills. Keep your supporting material in a systematic manner, perhaps organised into categories stating the purpose the expense was incurred for, eg. travelling, staff entertainment, client entertainment, etc.