Tax FAQ Series: Is Bookkeeping Important?
Yes. Very important! Financial reports provide you a way to know how your business is doing at a detailed level and the bookkeeping activity is what provides the detail for these financial reports. This information is also what’s used to prepare your taxes and answer questions the IRS may have about your taxes. So without bookkeeping records, none of this would be possible.
Software and internet packages make it easy to track and categorize financial records. Much of what used to be handled by a bookkeeper and/or accountant can now be easily handled by software.
Remember that the purpose of accounting software is to simplify the record keeping tasks of running a business. Look for software that does what you need and does it easily and efficiently. In most cases, you’ll need some type of program that allows you to track each expense, categorize it by expense type (office expense, travel, marketing, etc.) and include some form of description/explanation to provide the details of the transaction. Then you’ll need the ability to create a report on a regular basis that summarizes this information.
There are many additional options available in the various software packages. But get these only if you need them. If you have inventory and need a system for tracking it, you’ll also want to look for inventory management features. If you have accounts payable or accounts receivable, then these features could be important. If you want to handle payroll yourself then you’ll be looking for a program with payroll and payroll tax features. Bottom line – look for the features you need, but tracking your finances is very important so put a system in place and use it consistently.
If you have a question you would like featured on the Tax FAQ series, contact firstname.lastname@example.org.