Tracking your home-based business expenses can be as easy as maintaining a checkbook record. The most basic method of recording home-based business expenses is to use a business checking account and a cash disbursements, general ledger book. Business expenses, even for a home-based office, can get out of hand unless you have a system of keeping up with them monthly. An expense ledger can help you track expenses and control how your money is spent.
Open a checking account for your home based business. Use this account only for paying expenses that are related to your business.
Record the specific purpose of the expense in the memo section of each check. Do not try to rely on your memory.
Record each check in the checkbook ledger. Or, use the duplicate checks that copy your check onto carbon paper. Retain this copy for your records.
Set up a general ledger for business expenses. Use one column in the ledger for each type of expense. Utilities, office supplies, product inventory, advertising, travel and telephone usage are some of the typical expenses for a home-based business. Your ledger should list all the expenses you incur each month and should be classified in a way that helps you keep up with your expenses. Record each check amount in the appropriate column of the ledger.
Create a filing system for your expense documents. One file for each type of expense listed in your ledger should suffice. Attach the check copy or write the check number and amount on bills that you pay from your business checking account and place the paid bill in a separate file folder until the expense is recorded in the ledger. File the recorded expense in a file folder labeled for that type of expense. For example, you should have one file for utility bills, another for telephone bills and another file for office supplies such as paper and computer ink.
Record each expense in the ledger at the end of the month. File the recorded copy of the check attached to the bill or sales receipt in the appropriate folder.
Consider using a general ledger software program on your computer or hiring an accountant to help track expenses when your business grows.
Enter your expense data in the general ledger promptly. Be consistent and enter data each month.
Keep financial records secure by storing them in a fireproof filing cabinet or a fireproof safe.
Keep all records for at least six to seven years for tax purposes.
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