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The Online Advisor - June 1998
Smart Business: Maintain good business records
There are several categories of records that are important to a business, some for internal purposes and some for tax returns and other government requirements.
Tax and accounting. The IRS says that you must maintain adequate records to support almost every item of income and expense that you claim on your annual tax return. You must be able to produce receipts, invoices, canceled checks, or banking records supporting expense items. Keep sales slips, invoices, or bank records to support income items.
Most businesses have adequate accounting systems to capture routine transactions, but not for nonroutine transactions such as the purchase of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.
Good recordkeeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense.
Corporate records. Every incorporated business needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also, keep copies of all contracts and leases. Finally, don't forget current and terminated employee files, and records of employee pension or profit sharing plans. Most corporate and employee pension plan records should be kept indefinitely.
Computer records. These days, more and more business records are stored electronically. While this saves time and space, it also increases the risk of accidental loss or damage. Make sure your computer system is backed up regularly, and keep the backup copy in a fireproof location, preferably offsite.