It is very important that you know what you’re supposed to be tracking and why.
To prove you have a business expense, the IRS and the state require the following:
- Date (When)
- Payee (Who)
- Description (Why & how is it connected to the business)
- Amount (How much)
- Payment Method (What account, cash, check, credit, barter, etc.)
This is required for every single transaction. You may recognize the Who-What-When-Where idea from school and storytelling. We have to use your financial transactions to tell the story of your business.
Some clients give us a “lump sum” amount simply called “expenses.” While we do understand you are paying expenses, we classify them (cost of goods, postage, office supplies, meals & entertainment) and we have to know the source of the payment (what you paid it with – checking account, credit card, etc.)
We hope this helps you in knowing what and how to track your business expense. We are not attempting to audit your books, but without this information, we’re playing a guessing game.