Keeping good business records helps monitor the progress of your business, helps prepare accurate financial statements and helps prepare an accurate tax return. Recordkeeping systems range from paper ledgers to complex accounting software. Regardless of the recordkeeping system used, businesses need to keep documentation to support the entries in the accounting records. Answers to some frequently asked questions regarding supporting documentation follow.

1) What income supporting documents should be maintained?

    • Keep supporting documents that show the amounts and sources of your income. Some examples are: bank deposit slips, customer invoices, credit card charge slips.

2) What purchases and expense supporting documents should be maintained?

    • Keep supporting documents that show the amounts paid and the description of the purchase/expense. Some examples are: vendor invoices, store receipts, account statements, credit card purchase slips.

3) Is the credit card statement sufficient supporting documentation?

    • Along with the credit card statement, you must keep credit card purchase slips, store receipts and vendor invoices to show the cost and date of the credit card purchase.

4) What supporting documentation is required for business meals and entertainment expenses?

    • Keep receipts that include:
      • Name and location of the restaurant/entertainment
      • Date and amount of the expense
      • Write the business purpose of the meal on the receipt or a piece of paper to be included with the receipt
      • Also write the names of the recipients and their business relationship; include the name of the business and, employee that is present;

5) What records must be kept for business travel expenses?

    • Keep receipts that include:
      • Name and location of the expense – for example the hotel name and city
      • Dates and duration of the expense
      • Write the business purpose on the receipt or a piece of paper to be included with the receipt

6) What records must be kept for asset purchases?

    • Keep the following records to support the calculation of the annual depreciation expense and the gain or loss when you sell the asset. These records should be carried forward from the year of purchase to the year of disposition or sale.
      • Purchase invoices for the asset and any improvement costs related to the asset. The purchase invoice should include the date of the purchase and amount paid.
      • Sales invoices to substantiate the sale of an asset. The invoice should include the date of the transactions and the amount received.
      • Real estate closing statements

For more information regarding supporting documentation, refer to IRS Publication 583, Starting a Business and Keeping Business Records. For information regarding employee records refer to IRS Publication 15 (Circular E), Employer’s Tax Guide.

-Deb Launi