Managing the cash transactions in your business is important both for your own recordkeeping and for proving expenses on your tax forms. Here are some basic steps to help you keep your cash transactions records in order.
To manage cash in your business:
Use pre-numbered sales invoices or receipts to track sales to customers.
Maintain a separate bank account for your business expenses (versus using your personal account).
Reconcile your monthly bank statement for both deposits made and checks written. This lets the bank do part of your recordkeeping for you.
Pay for all business expenses using checks from your business bank account, rather than from your personal bank account.
Use your check register as a basic cash payments register.
Consider investing in simple spreadsheet-like columnar paper or a professional multi-column book. you will get to pick out the column titles so pick ones that you generally will use a lot, like merchandise purchased, salaries, utilities, and rent expense.
Enter in the last column as general expenses any payments that don't fit one of your other columns, and explain what they are.
Enter money you take from your business which is not a salary, including payments made for you by the business, into a column called draws. This helps you know what amount of benefits in cash you have taken from the business during the year.
Always deposit all your customer payments to you in full in the bank, whether received in cash or by check. Then, all you need to do to determine your income at the end of the month/year is to add up all your deposits and match them to your sales invoice totals.
Have a file (or box) where you place all cash receipts so that you can have documentation of cash transactions.
Tips:
- Using this basic system throughout the year for income and expenses means you can just add up the columns and get the correct numbers for your gross receipts and business expenses for your tax return.
- This system also helps you compute your quarterly estimated tax payments.
- For additional details and explanations on recordkeeping, and a sample of business records, see IRS Publication 583, Starting a Business and Keeping Records.
