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Why do small businesses need accounting records?

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Baker Construction is a small corporation owned and managed by Tom Baker. The corporation has 21 employees, few creditors, and no investor other than Tom Baker. Thus, like many small businesses, it has no obligation to issue financial statements to creditors or investors. Under these circumstances, is there any reason for this corporation to maintain accounting records?

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Solution Summary

The solution presents five important reasons why small businesses must maintain accounting records.

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1. Income tax reporting substantiated by accounting records is mandated. Without any records, the IRS will discover bank records and will add up the total deposits and calculate tax on them with no allowance for deductions. Very bad. If the taxpayer is a total sneak and ...

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