Tax authorities are often relaxed about the need for small business to prepare and produce formal accounting records. Often the requirement is simply that each business retains sufficient financial records to support the accounts submitted.
Such advice from tax authorities places a burden upon small business in that the vast majority are honest hard working people who are meticulous about keeping accounting records of sales made during the financial year. Unfortunately many small businesses are not so meticulous about keeping financial records of business expenses in their accounts.
A typical taxi driver may for instance keep a diary and record the daily receipts from his fares. If those recorded receipts are accurate then the total sales turnover for the year will show the correct total. The same may not be true of expenses and the accounts thereby overstated.
The total business expenses of the taxi driver would mainly include the fuel receipts plus the other running costs of the business. Typically a receipt for fuel will be obtained and kept in a file or shoe box. Some may get mislaid and lost and be missing from the final accounts preparation.
The stationery item is just one example which could be multiplied hundreds of times with hundreds of different items during the financial year. While each item missed and unrecorded may not be significant the total could well be sufficient to significantly reduce the year end tax burden by lowering the net taxable accounting profit.
Having retained a separate receipt for everything it is useful if the receipts are filed and the bookkeeping system employed updated at least once a month and preferably each week. By updating the accounting records on a regular basis more expenses will be recorded as the memory will remember recent expenses more clearly and accurately.