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Edit this text Choose a record keeping system that plainly shows income and expenses for the year. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. Your recordkeeping system should also include a summary of your business transactions. This summary is ordinarily made in your business books (for example, accounting journals and ledgers). Your books must show your gross income, as well as your deductions and credits. For most small businesses , the business checkbook is the main source for entries in the accounting system .

Supporting Business Documents

Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents documentation such as invoices and receipts. Supporting documentation include sales receipts , paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the info you need to record in your books . It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe spot. For instance, organize them by year and type of income or expense. For more detailed information refer to Publication 583,  Starting a Business and Keeping Records.

The following are some of the types of records you should keep:

• Gross receipts are the income you receive from your business. You should keep supporting documentation that show the amounts and sources of your gross receipts. Documentation for gross receipts include the following:
  • Cash register receipts
  • Bank deposit slips
  • Receipt books
  • Invoices or Invoice Books
  • Credit card receipts
  • Forms 1099-MISC
• Purchases are the items you buy and resell to customers . If you are a manufacturer or maker, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and what the amount was for purchases. Documents for purchases include :
  • Canceled checks
  • Cash register tape receipts
  • Credit card sales slips
  • Invoices
• Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documentation should show the amount paid and that the amount was for a business expense. Documents for expenses include the following:
  • Canceled checks
  • Cash register tapes
  • Account statements
  • Credit card sales slips
  • Invoices
  • Petty cash slips for small cash payments
• Business Entertaiment Deductions (Travel, Transportation, Entertainment, and Gift Expenses)If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove certain elements of expenses.  For additional information on how to prove certain business expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

• Assets are the property, such as machinery and furniture, that you own and use in your company . You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets. Documentation for assets include the following:
  • When and how you acquired the assets.
  • Purchase price
  • Cost of improvements
  • Section 179 deduction taken.
  • depreciation deductions
  • Deductions taken for casualty losses, such as losses resulting from fires or storms.
  • How you used the asset.
    When and how you disposed of the asset.
  • Selling price.
  • Expenses of sale.

  The following documents may show this information.

  • Purchase and sales receipts .
  • Real estate closing statements.
  • Canceled checks.

This article was written by Joe Moughon Houston CPA.