Introduction
Accounting is often considered the backbone of any business. It provides a clear overview of the financial health of the company and helps in making informed decisions. A frequently overlooked, but equally crucial, aspect is the preservation of source documents. In this blog, we will explore the main reasons why it is imperative to retain these documents.
1. Tax compliance
The first and most obvious reason is tax compliance. Tax authorities require businesses to keep their accounting records for a certain period of time. Failure to comply with these rules can result in severe penalties and even legal action.
2. Internal and external audit
Audits are an inevitable part of business life. Auditors need access to all source documents to verify the accuracy of financial statements. The absence of these documents can make the audit process long and tedious, and can also lead to inaccurate conclusions.
3. Effective financial management
Source documents are essential for tracking expenses and income. They help identify areas where the company can save money or where it needs to invest more. Without these documents, it would be difficult to manage finances effectively.
4. Conflict resolution
Source documents serve as evidence in the event of a dispute with suppliers, customers or even employees. They can be used to resolve conflicts quickly and efficiently, without having to go through lengthy and costly legal proceedings.
5. Planning and decision making
Accounting records are a valuable source of information for future planning. They help understand revenue and expense trends, which is crucial for making informed decisions.
Conclusion
Retaining accounting source documents is not only a good practice, but it is also essential for many aspects of running a business. From complying with tax laws to facilitating audits and managing finances efficiently, the benefits are numerous and undeniable.
If you are starting your business, create a directory of important documents from the start. 6DT managers are available to discuss all your aspects of accounting, including source document management. Contact us !