How to Manage Business Expense Records
Every business has some income and expenditure. Today we will talk about expenses managing. A business owner holds two types of expenses. One is personal expenses and the other is business expenses. Every employer wants to save money. And expenses decrease our cash. In order to track expenses, we should use a technology-based expense tracker. Because in order to pay tax, expense records can help us to decrease our tax return. Because the largest part of our tax return is based upon our business expenses, Hence it’s very important to keep records of our expenses.
And this is the reason behind keeping a bookkeeper or accountant. Because they manage all your expenses, keeping your own records and managing expense records efficiently will make the process much simpler.
So let’s see how to manage your expense records.
How long do you have to keep expenditure receipts?
If your company is limited then you have to keep your expense records for six-year. This is a bit easier for the self-employed. A sole trader must keep their documents for at least 5 years after presenting the January 31 deadline of the appropriate tax year.
This longer-term is for the benefit of HMRC rather than you. HMRC may choose to have their accounts scrutinized for up to six years in the past, and if they decide to call then you should be able to support every expense claim you have incurred in that period
What Types of records do you need to keep for your business
Its totally depends on the type of business holding you are like Sole trader or limited company, etc. – and other factors such as you are VAT registered. The record should include
- Expenses and profits.
Keeping your bank and card statement in mind, checkbook and deposit book stubs can help with this.
Keep Your Business and Personal Expenses Separate
A business is successful when a business owner puts all expenses in different categories. Like business expenses and personal expenses. Both expenses should be separate. Because it helps reduce your problem of managing profit and loss in business.
Separating business expenses and personal expenses helps to reduce tax. It is important to keep an accurate record of personal and business expenses while running a business, as this will not only save time but will also be an important part of stress.
One of the best ways to separating your business expenses is, use a business debit card or credit card. When you addicted to using a business credit card then you will not use your personal account for a business transaction. This will help us to separate our personal and business expenses.
Get Sufficient Documentation for All Business Expenses
A business owner generally did this mistake. They think keeping lists of any transaction is enough for record management purposes. Just suppose you are a businessman and you have purchased something through credit card. How will you keep their record for future references?
Simply you will think keeping the credit card statements is good enough for that.
But it’s not like that, The Canada Revenue Agency (CRA) demands more regarding business expense claim. If you will show credit card statement to them, they will not accept. And CRA can cancel your credit checks as proof of expense claims.
Managing your records, you must keep two-point in your mind.
Always take a receipt
Whenever you shop, make a habit of asking for a receipt – no matter how small. Smaller expenses also add up, and you need documentation for your business records.
Put A Label On Your Receipts
There are still companies around that hand out a receipt that do blank on them except the date the item was purchased and how much it costs – helpful to find out when you are staring at the receipt. Not what you are doing was the item in question and what business expenditure category does it fit into.
When you receive a receipt, look at it and write relevant information on it, such as what is the receipt and what is the expenditure category.
Now let’s see which type of business receipt you must be recorded well.
Types of Business Receipt That you Must Record Well
There are 5 types of receipts that you should keep a record for getting a business expense claim.
1. Foods & Entertainment Receipt
If you have ever conducted a meeting in a restaurant. Then maintain their record well in business expense. It’s better to write behind of receipt, which is for which purpose of the meeting conducted by you.
If you are traveling out of town for business purpose. Then you can keep this type of receipt. Because IRS and CRA can cancel your Business expense claim if they didn’t find any receipt.
In order to use a vehicle for business functions. you wish to say why you have got used vehicles. and so you’ll be able to apply the proportion of use to vehicle-related expenses.
For gifts like passes to a show, it is important whether the provider goes with the occasion beneficiary. On the off chance that they do as such, the costs will be delegated excitement instead of a gift. Write a Note these details on the receipt’s backside.
5.Home office receipts
Like vehicle costs, you have to compute what level of your house is utilized for business and afterward apply that rate to home-related costs.
Use Separate Bank Account For Your Business
A business bank account is an account that supports a business owner to keep business transactions separate from personal finance, and usually comes with special conditions for businesses. The advantages of getting a separate bank account for your business are obvious.
What type of business bank account should you get?
A checking account – preferably one that distributes monthly statements and returns your canceled check to you
Professional checks facilitate get your records management easier. as a result of you’ll write the reminder line ahead of every check to manage the expense.
Use Separate Mastercard or credit card For Business
Using a MasterCard for business expenses may be convenient. Thanks for getting some additional expenses, and can also make it possible to get rewards and benefits every time you swipe. In general, however, it is always good to use a separate credit card for business expenses, as you do for personal expenses.
Using separate business cards will help you to manage your business expenses. Because it will separate your personal expense and business expense.
Prepare Your Business expense For Desire length and Particular Financial Year
The IRS states that you need to keep your records “for a long time” to prove income or deductions on tax returns. In general, this means that you need to keep your tax records for three years from the date of filing the return or from the due date of the tax return. But you have to keep your business expense record separate for every financial year. So that it will be easy to find out when you have to submit tax return.
Choose Best Accounting Software For Your Business
Today’s time is for digital world, thence there are legion accounting package for little businesses are obtainable within the market. a number of them are freed from price and a few are paid. This accounting package is sometimes supported by cloud computing. That’s why you can easily manage your business expense on your mobile and laptops. The most popular accounting app for your small business is FreshBooks and Zoho. Freshbooks and Zoho take $10 for a month to manage your business expenses.
Advantage of Cloud-Based Accounting Software
- Send and receive invoices directly from one smartphone to another.
- You can take pictures of the lunch receipt with your customer and record it as a business expense.
- You can track the due time with a built-in timer.
All these rules are followed by lots of administrative. The small business owner just needs to establish good habits and perseverance. But if you apply these rules now and follow them, you will see a huge difference in the next tax time and your accounting will become easier throughout the year.