Introduction to business 6: Record keeping
An Introduction to Business Record-Keeping. Don’t stress out about
the paperwork! In this video we explain what you need
to do to keep on top of your record keeping.
Meet Jeffrey! He runs a successful plumbing company. He
loves his work but also understands he needs to make
time for record keeping. He keeps a record of every business
transaction, including all cash and non-cash sales and expenses. Jeffrey always files his paper records as soon as he receives them. If someone
sends him a record electronically he saves it to his computer and
regularly makes a backup. All records must be kept for at least
seven tax years. These days Jeffrey also enters everything into an accounting software package.
He finds it easier as most the work is done automatically
and he makes far fewer mistakes.
At the end of the tax year Jeffrey needs to file the company’s
income tax return and an IR10 financial statement summary form.
He needs to prepare his financial statements from the business records he has carefully organised throughout
the year. What our financial statements?
They’re records that clearly outline the financial performance and strength of your business.
Most businesses prepare a profit and loss statement and a balance sheet.
The profit and loss statement shows gross income, expenses, and
net profit. You include you net profit in the
income tax return. The balance sheet shows the
businesses assets and liabilities at the end of
the tax year. Financial statements must meet minimum
financial reporting requirements to ensure you pay the right amount of
tax. You can find more information about these requirements on Inland Revenue’s website. Preparing financial statements can be a
bit tricky so Jeffrey gets his accountant in Sarah to
do it. Allowing Jeffrey to focus on what he
does best, plumbing!
Because his records so well-organised Jeffery saves money on accounting fees.
Sarah prepares the financial statements to meet the minimum requirements.
Jeffery makes sure all his records and financial statements are kept safely,
just in case and Inland Revenue needs to see them. Financial statements aren’t just about tax. Jeffery can use them to identify
potential problems and opportunities in his business.
Every year, Sarah advises Jeffrey on ways he can
grow his business and reduce risks. Jeffery’s plumbing
business is going from strength to strength. One reason for his success is a good record-keeping system.
If you’d like more information please visit Inland Revenue’s website
Our Tool for business has a section on record keeping.
Go to business.govt.nz to access further tools and resources for starting in business.