Tuesday, August 9, 2022
UncategorizedThe Importance of Good Record Keeping for Both Individuals and Businesses

The Importance of Good Record Keeping for Both Individuals and Businesses

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Losing track of important paperwork? Business heading south? You might need to reconsider your record keeping process, or lack thereof. Regardless of whether you are a working individual or business owner, having good record keeping practices will certainly make your life easier. By taking down transactions and organizing documents in a clear and systematic manner, you will be better prepared for any administrative matters that come your way. It’s important to take advice from business experts, like Venture Smarter, and keep your information organized.

Photo by Mr Cup / Fabien Barral on Unsplash

Advice for The Individual 

Although dealing with taxes, insurance, and loans can be extremely stressful and time-consuming, keeping accurate records that can be readily accessed makes the filing and application process a lot more smooth sailing. Homeowners or individuals who invest should have basic records pertaining to their income and expenses. However, there are plenty of specific records that may be required, depending on the individual’s circumstances.

When it comes to tax returns, you may receive tons of different forms from employers or companies you’ve worked with during the preparation process. This paperwork contains essential information such as income details and potential deductions, and hence should be stored together in one place. Receipts for deduction claims should also be kept, especially if you are audited and require proof to back up any deductions. Taxes can be filed quickly and accurately as long as your claimed income, credits, and expenses are supported. 

One tax form every individual who has worked full-time or part-time should be familiar with is W-2. This form is filed by employers and contains information about wages as well as the amount of taxes withheld from your paychecks. If you are unable to get information from your boss regarding your W-2, and intervention by the IRS is ineffective, you can still adhere to the tax deadline by filling in Form 4852. You will have to fill in your estimated wages earned, taxes withheld, and the period you worked for that employer, all of which can be calculated using your last pay stub. 

Loans are another instance in which documentation is key. During the loan application process, a lender will want to see specific information about potential borrowers, so as to confirm their financial stability and ensure that the loan will be paid back. Some examples of documentation that might be required for secured loans like a personal loan include proof of income in the form of pay stubs or W-2 forms, proof of identity, housing costs, and debt. Take out that loan before it takes you out. 

The Eye of The Employer

There are various advantageous reasons as to why business owners and employers should be maintaining accurate and consistent documentation through a reliable record keeping system. Keeping your records in check helps you understand long-term profit projections and the current business situation. It will also allow you to reevaluate any potential improvement or innovation that should be implemented. Overall, record keeping enriches your learning experience, enabling you to learn, grow, and flourish. 

Records should include a summary of your business transactions, which can be divided into different categories like gross income, credits, and deductions in your ledger or accounting journal. Regardless of which system you choose to undertake, typically electronic or by hand, expenses and transactions should be recorded on a daily basis. Do not let everything pile up!

Good records are needed in the preparation of your company’s financial statements, which include income statements and balance sheets. The accuracy of these statements are important as they simplify any dealings you may have with banks or creditors, and will help you manage your business. This also prevents serious penalties that may be incurred as a result of breaking IRS compliance regulations.  

Record keeping also reduces the risk of fraud. For example, companies will receive money or property from different sources, and so every source of income must be identified and tracked. Fraudulent transactions may go unnoticed without proper record keeping, which could be costly and result in wasted resources that could otherwise be used for organizational growth. Inventory supplies and distribution should also be recorded in detail. Any discrepancies will easily be spotted, preventing the filing of false or inaccurate inventory reports.

Another reason why record keeping is so vital? It offloads the burden on companies and employees. Having a fixed system that is well-designed and properly managed will ensure that the same set of record keeping practices are followed. Being able to capture, map, store, and retrieve documents, and having knowledge of their whereabouts at all times will lead to a more efficient and orderly workflow. All the better for maximizing profits and minimizing problems.

All in all, record keeping is a necessary yet fundamental process everyone will inevitably have to deal with at some point. Not only does a good and consistent record keeping system save time and money, it also brings peace of mind to both the individual and the employer.

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