Bookkeeping 102

This will be granular. Some of you are ( politely! ) clueless about your expenses. What’s an expense? I’m serious. (skip this if you have already done bookkeeping) And here is the answer: an expense is information about money spent in pursuit of your business activities which is sufficient enough to create an audit trail… 

…it should be sufficient enough in its detail to withstand challenge. No Ma’am I did not rescue this receipt from a trashcan. I swear…  

Legitimate expenses are the reason that you don’t get taxed on all of your income (called your gross income). You get taxed on your gross income less expenses. It’s the money that you actually made. Your income. 

Expenses should organize the information contained in a detailed invoice or receipt and point also to a method of payment (bank or credit card) that is owned by you or your business. It should document items of purchase that are clearly intended for your business consumption, or delivered to your customers in the course of doing business with them. If you tune-up Devon Fagar’s car engine, an expense might be the sparkplugs purchased from Ipswich Auto Parts. 

A good bookkeeping record of an expense includes this information : the purchase date, a vendor, an amount, a method of payment, and a customer, client or expense category. Enough said. 

Your expenses are important. They determine whether you made money and how much you pay in taxes.