The tax law does not require you to maintain books and records in any particular way. It does, however, require you to keep an accurate and complete set of books for each business you operate. Statistics show that this can be an awesome task averaging 10 hours each week (that amounts to about 520 hours each year) for small business owners.
Set up your books when you begin your business. Your books are based on your choice of tax year and accounting method, as explained in Chapter 2. You also need to choose a bookkeeping method—single-entry or double-entry. If you are a service business, single-entry bookkeeping may be sufficient. However, if your business involves inventory or is complicated, double-entry should be used. If you use accounting software to keep your books, you will not be aware of the bookkeeping entry method in use; you merely input income and expense items and the program does the rest.
Your books should be set up with various accounts in order to group your income and expenses. The broad categories of accounts include income, expenses, assets, liabilities, and equity (or net worth). Within these accounts you can keep various subaccounts. For example, in an account called Expenses you can have subaccounts for advertising, bad debts, interest expense, taxes, rents, repairs, and more. In fact, your subaccounts should reflect the various income and deduction topics discussed throughout this book.
Technology for Recordkeeping
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