A business ledger is a record of business transactions. It provides invaluable information at tax time by showing how much your company earned, as well as how much it spent in order to operate. A business ledger also helps you to operate your company efficiently and profitably by providing details about where your money is coming from, and where it is going.
An income ledger is a spreadsheet account of the sums that your company earns. If your business has multiple revenue streams, such as wholesale and retail sales, your income ledger will categorize these earnings, tallying the sums you generate in each. If you operate a business like a construction company which makes a limited number of large transactions, your income ledger might include an entry for every transaction. If you own a retail store that makes a large number of small transactions, your income ledger will likely track daily or weekly sales figures.
An expense ledger tracks the amount that your company spends in order to operate, breaking down expenses into such categories as rent, payroll, taxes, utilities and supplies. The categories in your expense ledger should roughly correspond to the categories that the IRS allows you to deduct as legitimate business expenses, or the categories in the expenses section of IRS Form 1040, Schedule C. Your expense ledger can list each check or purchase separately, or you can consolidate entries — entering cumulative weekly payroll totals or a monthly total for office supplies from your petty cash log, for instance.
Ledgers and Taxes
If you have set up your ledger to correspond with the categories that the IRS allows for legitimate business expenses, then you easily be able to transfer these figures when it is time to file income taxes. Your taxable business profit is the total of your business income receipts minus the total amount of your business expenses, or the amount that it cost you to operate your company. Save copies of business ledgers in order to verify the figures on your tax forms if necessary.
Ledgers and Business Planning
A good ledger is also an invaluable tool for internal operating purposes, providing specific information about how your company earns and spends money. If your business is chronically short of cash, your business ledger can help you to identify areas where you are spending too much or earning too little. If you want to expand your company, your business ledger can help show you which area of your operations are most profitable and have the greatest potential for growth.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.