Improper accounting can bring your business to a halt in many circumstances when you need help the most, such as tax preparation, due diligence in business acquisition process, loan financing, third-party verifications, and more. Therefore, you need a great bookkeeper or accountant.
A bookkeeper or accountant will help prepare your financial statements, which in turn helps you to understand the financial state of your business. With a solid record-keeping system in place, you stand in a unique situation to do the following:
You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.
You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
You will receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.
You may forget expenses when you prepare your tax return unless you record them when they occur.
You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statements.
You must always keep your business records available for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.