Recordkeeping is part and parcel of running a business smoothly. If you are a new business owner, the first year after you have registered your company in Hong Kong might be challenging for you as you decide which business records you have to keep. Fret not, just like Marie Kondo’s KonMari method, the key is to simplify things into a series of clear and manageable tasks. From there, make sure that you access and maintain these records regularly to avoid having your paperwork pile up.
Read on to find out more about the importance of maintaining good business records, and the necessary records that e-commerce companies must keep.
What Is Recordkeeping?
Recordkeeping is the art of recording transactions and events in an accounting system. Since the principles of accounting rely on accurate and thorough records, record keeping is the basic foundation of accounting.
Why Should I Maintain Good Business Records?
Stay Compliant With The Law
Having a consistent record-keeping practice is not just good for your company’s operations but it is often a legal requirement in many jurisdictions across the world. Countries like Singapore and Hong Kong employ the services of corporate secretaries to ensure that companies are compliant with each countries’ regulations. Knowing where important documents are would help them in their job too.
Prevent Theft or Fraud
Staying prepared can help you prevent fraud, data breach or identity theft. One of the main reasons these could happen is because of improper document management. To curb this, always keep detailed records of your business transactions and expenses so you can have a better understanding of your cash flow, thereby preventing fraud. Additionally, this information will help you to produce accurate financial statements when audit season comes around.
Prepare Tax Returns
When it comes to tax season, you will have to file documents with the Inland Revenue Department (IRD). These should include documentation related to credits, expenses and income included on your tax return. Should your tax return be audited by the IRD, having good business records can allow you to easily find supporting documentation and avoid any potential fees and taxes.
What Are The Required Business Records?
According to the Inland Revenue Ordinance, any company in Hong Kong that carries on a business, profession or trade is required to keep sufficient business records in English or Chinese. These business records should reflect the income and expenditure of a company and for assessable profits to be ascertained.
The required business records are:
- Accounting books recording income and expenditure or receipts and payments
- Bank statements
- Records of any liabilities and assets of the person related to that trade, business, or profession
- Records of all entries from the daily sums of money received and expended which is related to that trade, business, or profession
- Records of where that trade or business is involved in the purchasing or selling of goods
- Records of where the business or trade is involved in the provision of services. A complete record of all services is required in sufficient detail for the Commission to readily verify the records.
Additionally, you are also required to maintain records of your bank accounts. To simplify matters, we recommend that you open a business bank account to differentiate the finances from your personal bank account. In relation to your business bank account, these records should be kept:
- Bank statements
- Deposit receipts
- Records of goods and services purchased
- Cheque butts dealing
- Amount stated on cheques
- Payment date
- Payee name
- Records detailing whether the expenses were for personal or business matters
What Are The Methods of Keeping Business Records?
In Hong Kong, paper or electronic records are both acceptable.
It may sometimes be challenging for you to stick to one method of organisation, since some clients may be more traditional and accept only paper invoices, while others might be digital nomads and communicate with electronic receipts.
However, you should always retain the original document source such as bank deposit slips, invoices and check books, in case the need to run a check on your records arises.
Some business owners prefer to remain loyal to the old-fashioned ways of accounting by keeping paper records. However, the fact is that there is no significant benefit of keeping paper records since they are more susceptible to incidents such as coffee spills or misplacing of documents.
If you have a huge volume of source documents to maintain, the Inland Revenue Department (IRD) allows for the storing of source documents in an alternate form. This can be through the scanning of documents and storing them in DVD-Roms or CD-Roms. This method is acceptable by the law and you can then keep the documents in these devices, which is a handy alternative to preserving the documents in their original forms.
Electronic records take place in various forms, but the most common two are scanned invoices and scanned receipts.
You can easily keep a digitised version of your invoices, accounts payable and others simply by scanning them. This method saves you plenty of time, since scanning an invoice or taking a picture of it takes merely a few seconds. Additionally, there is no need for paper and storage units to keep these records, reducing clutter in your office. For enhanced security, you can even encrypt your invoices with a password.
The same advantages apply for scanned receipts. Did you know that you can easily scan and keep track of your receipts with the Osome app? This means that you can be efficient and fast, storing your receipts safely in no time. Furthermore, your financial data can be processed almost instantaneously.
How Long Should Company Records be Kept For?
You should maintain your business records for a minimum period of seven years. Failure to comply with the requirements of the Inland Revenue Ordinance without a valid excuse may result in a maximum fine of HKD $100,000.
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