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By law, one must keep financial records which are reliable and provide an accurate view of the business. Internal Revenue Code Section 6001 requires businesses to keep records appropriate to their trade or business. The IRS has the right to view these records in the event they want to audit the business's tax return. If they do not like what they find, the penalties can be deadly to the business and own personal financial well-being. In addition to the IRS's ability to audit the books, states often have laws requiring such records and surprise auditors who show up unannounced insisting on seeing the state tax records. Good record keeping is essential for any business. From the beginning, there are three types of records the business should absolutely maintain: a record of expenses, a record or income, and a record of assets.

First record, then pay; if there is an error, trace it from the records. Human memory is short. Even the most brilliant executive or manager cannot accurately remember what he might have observed regarding the daily operations. He need not strain his memory unnecessarily, if proper and complete records of all business transactions are kept regularly. More-over, records can be used by different officials for different decision-making purposes.