Accounting records definition

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What are Accounting Records?

Accounting records are the original source documents, journal entries, and ledgers that describe the accounting transactions of a business. Accounting records support the production of financial statements. They are to be retained for a number of years, so that outside entities can inspect them and verify that the financial statements derived from them are correct. Auditors and taxing authorities are the entities most likely to inspect accounting records.

Types of Accounting Records

The most common types of accounting records are noted below:

  • General ledger. The general ledger is the central repository of a company’s financial transactions, organized by account. It includes detailed entries for assets, liabilities, equity, revenue, and expenses. This record is used to prepare financial statements and track the overall financial position of the business.

  • Accounts payable ledger. This ledger records all amounts the business owes to suppliers and vendors for goods and services received. It includes information such as invoice dates, payment terms, and due dates. Monitoring this record ensures timely payments and helps manage cash flow effectively.

  • Accounts receivable ledger. This ledger tracks the amounts customers owe to the business for products sold or services rendered on credit. It contains invoice details, payment history, and outstanding balances. Maintaining it helps businesses follow up on overdue payments and manage customer relationships.

  • Cash book. The cash book records all cash inflows and outflows, including cash sales, expenses, and deposits. It acts as both a journal and a ledger for cash transactions. This record is crucial for daily cash management and bank reconciliation.

  • Inventory records. Inventory records track the quantity and value of products or raw materials a business holds. They document purchases, usage, sales, and stock levels over time. Accurate inventory records help prevent stockouts, overstocking, and financial discrepancies.

  • Payroll records. These records document employee compensation, including wages, bonuses, taxes withheld, and benefits. They are essential for tax reporting, compliance, and payroll audits. Maintaining detailed payroll records ensures accurate employee payments and legal adherence.

  • Journal entries. Journal entries are chronological records of individual transactions before they are posted to the ledger. Each entry includes a date, accounts affected, debit and credit amounts, and a brief description. They serve as the foundation for double-entry accounting.

  • Bank statements and reconciliation records. Bank statements show all transactions in a company’s bank account, while reconciliation records match them with internal records. This process helps identify errors, missing entries, or unauthorized transactions. Regular reconciliations maintain accuracy and protect against fraud.

  • Fixed asset register. A fixed asset register lists long-term assets like equipment, vehicles, and property, along with purchase dates, values, and depreciation. It helps in tracking asset usage and calculating depreciation for financial reporting. This record is important for budgeting and asset maintenance planning.

  • Tax records. Tax records include documentation of income tax, sales tax, VAT, and other relevant taxes paid or collected. They consist of filed returns, supporting calculations, and receipts. These records are critical for tax compliance, audits, and future planning.

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Accounting Record Retention Requirements

The legal requirements to maintain accounting records are not consistent. At a minimum, records should be stored for as long as required to support an audit by the Internal Revenue Service. An offsetting issue is that eliminating records as soon as legally allowable keeps a business from having to produce accounting records in the event of a lawsuit.

It is not efficient to store accounting records forever, since the cost of storage will eventually exceed any benefit to be gained from having them available.

Examples of Accounting Records

Examples of accounting records are the general ledger, all subsidiary ledgers, invoices, bank statements, cash receipts, and checks.