Why are accurate accounting records important to a business?

What goes wrong without good records:

• Missed deductions. If you cannot show a cost was paid and was for the business, you may not be able to deduct it.
• Surprise tax bills. Without a running profit figure, it is hard to set aside enough for estimated tax payments.
• Weak support in an exam. The IRS says records must support the income, expenses and credits on your return.
• Cash problems. You cannot spot a falling month, a slow-paying client or creeping costs if the numbers are a pile of receipts.
• Harder loans. Lenders usually ask for a profit and loss statement and sometimes a balance sheet.

What "accurate" means in practice:

1. Every business payment in and out is recorded once, with a date, amount and category.
2. Each entry has a supporting document, such as a receipt, invoice or bank statement.
3. Your books match your bank statement each month.
4. Personal spending is kept out of business totals.

The IRS has no required format, so a spreadsheet, a paper ledger or accounting software can all work if the records are complete. General information, not tax advice.