The IRS requires business owners to keep records of business activities, and you get to choose how to keep your records as long as it fits certain criteria.
The system must clearly show your income and expenses and you must have a summary of business transactions (usually found in accounting ledgers). Also, you must keep supporting documentation of your transactions.
There are a few main categories of records you need to focus on:
- Gross receipts (money you bring in)
- Purchases (stuff you buy to re-sell to customers)
- Expenses (the overhead and cost to run your business)
- Assets (large purchases such as property used for business)
- Liabilities (money you owe)
Records of these types of transactions vary depending on your business activities and type. For example, invoices are a common documentation of gross receipts, but it may differ if you just do cash sales.
Remember, the main concern when keeping IRS approved records is to keep information organized and complete.