Small Business Record-keeping involves maintaining accurate accounts and evidence of all of your business' transactions. You should always keep records in your business because it allows you to have a general idea of how your business is doing. For example, you might determine what products are being sold the most, which ones are not selling well, and how much profit you are making per sale. In addition, records will provide you with the data needed to prepare financial statements and tax returns for your business.

Always try to keep records of the following items:

1. Expenses: You must always keep a record of all the expenses your business incurs. Opening a business checking account is a great way to keep track of expenses. A checking account will give you the exact date, quantity, and expenses incurred by your business throughout the month.
2. Income: At a minimum you should record the type of payments received, dates received, and the source of payments. Remember that your business might earn revenue from different sources. For example, you might receive income from selling goods and services, selling an asset (i.e. a car) to finance your business, or from dividends received from investments.
3. Inventory: Always keep an accurate record of your inventory at hand. Update inventory records frequently; as soon as an item is sold, remove it from your inventory account.
4. Payroll: Regardless of the number of employees your business has, always keep adequate payroll records. As an employer, you are expected to keep records of each employee, listing their personal information as well as the hours worked and the wages earned. Every quarter prepare Form 941 (the Employees' Quarterly Federal Tax Return), which totals each employee's withholding for federal taxes and Social Security. You also have to prepare the W-2 form every year for each employee. The form summarizes each employee's total earnings and withholdings for the year and has to be sent to the employee and to the IRS.

In order to keep small business records of all the transactions in your business, you may use the single entry bookkeeping method, which is simple and efficient, as shown below:

Date | Description | Revenue | Expenses

4-Jan | Paid | phone bill | $250.00 4-Jan | Performed | repair service | $700.00
5-Jan | Paid | rent | $500.00
5-Jan | Performed | repair service | $1150.00
7-Jan |Paid | all employees $800.00
8-Jan Paid | Electricity bill $150.00

January totals $1,850.00 $1,700.00

Tip: Always keep your personal financial records separate from your small business records, this will allow you to keep track of all your business expenses more easily. It is also very important that you keep your business records for at least three years, as the IRS has the right to audit any transaction that occurred during the last three years in most states.

Andrea Stiles Pullas has written a series of finance related articles. For additional information on related topics, visit http://yourmoney.accion.org [1]