records not adequate report

[Bjorn]

The IRS issued a request for how we are going to change keeping track of sales in a small ice cream shop.

They don't have a cash register.

Would the IRS accept a contemporous sales journal with the morning and afternoon sales by subtotal? The cash register is a disaster because the kids good up too much and they drawer is never right.

Who has experience in what is acceptable proof?

Thanks.

[BOB W]

Register

They need to buy a new register and train the workers. Most, if not all, gov't agencies only accept register receipts. It is part of running this type of business, no matter how small the business is. Failure to properly record business sales will lead to "on site" audit where they can take your busiest week and multiply it by 52 to come up to your annual sales.

Take the time to train all employees......................

[Jiggers]

Cash Register Receipts

What about the taxpayers who are skimming the cash!

Did you ever notice that in small businesses, such as privately owned convenience stores, donut shops, coffee shops, etc. that when you go to pay, they use a calculator and then just open the cash drawer on the cash register to get your change?

There is no record on the cash register of any sales. Or sales tax info?

Believe me, they are skimming the cash and reporting only what they want to report.

I haven't seen an auditor ask for cash register receipts. They only want to know how the sales were calculated and then reconcile to the bank deposits.

Whatever.

[veritas]

The IRS issued a request for how we are going to change keeping track of sales in a small ice cream shop.

They don't have a cash register.

Would the IRS accept a contemporous sales journal with the morning and afternoon sales by subtotal? The cash register is a disaster because the kids good up too much and they drawer is never right.

Who has experience in what is acceptable proof?

Thanks.

I'd be more interested in how much the "kids" took than the owner. The owners have sent them an engraved invitation to pilfer.

[Parent of Holy Terrors]

Cash Register

So, Is a Cash Register REQUIRED for this situation or is there a cheaper avenue?

If a teen rings up 1.00 instead of 10.00 the internal theft would still be there.

Would a daily sales journal satisfy this issue?

[Jiggers]

Jiggers

A cash register is not required. The IRS cannot make you purchase any equipment. A daily sales register would be sufficient. This should tie into the deposit for the day.

As far as employee theft, you have to watch AND prosecute if you catch one stealing. That is the only way to stop the thefts.

[BOB W]

Register

Internal cash control requires a register, that is why you see notices posted at the register(s) " If your receipt is not correct or you do not get a receipt, contact the manager for a purchase discount".

Without a cash register and the proper controls that go with them, it will always lead to employee cash theft. Businesses that do not use a cash register ALWAYS intend on not reporting all their sales. The net results is large employee theft.

Cash control is a must and all cash businesses must have a fool-proof proceedure in place for such control. Is there still theft going on, yes. Merchandise theft for one, but that is another issue.

Proper cash register control is an art and every business dealing in cash must be educated on the proper use and how to "balancing out" at the end of the day. Cash shortages can still happen by giving out the wrong change. Controlling who runs the register is another issue. Many small-small businesses, even if they have a register, do not follow proper proceedures. This is an open invitation for employee theft.

[veritas]

Internal cash control requires a register, that is why you see notices posted at the register(s) " If your receipt is not correct or you do not get a receipt, contact the manager for a purchase discount".

Without a cash register and the proper controls that go with them, will always lead to employee cash theft. Businesses that do not use a cash register ALWAYS intend on not reporting all their sales. The net results is large employee theft.

Cash control is a must and all cash businesses must have a fool-proof proceedure in place for such control. Is there still theft going on, yes. Merchandise theft for one, but that is another issue.

Proper cash register control is an art and every business dealing in cash must be educated on the proper use and how to "balancing out" at the end of the day. Cash shortages can still happen by giving out the wrong change. Controlling who runs the register is another issue. Many small-small businesses, even if they have a register, do not follow proper proceedures. This is an open invitation for employee theft.

I say amen to that. If the owner doesn't show an interest in controlling their cash why should an employee. The owner described here previously is probably well known in the teen world as a place to go and get extra cash, food for the friends not to mention themselves.

I know that a circle off friends will go to each others place of employment and help themselves to whatever they want. It's almost like a barter system. Teen "a" goes to movie theater run by teen "b" and gets free admission. Teen b reciprocates and goes to gas station run by teen "a" for free gas. The interesting thing is they do not think they are doing anything wrong.

[dyne]

inadequate records letter

This sounds like an inadequate records letter was issued. When such a letter is
issued, IRS will automatically audit or look closely at their tax return for the
following year or two. The inadequate records letter is also used to justify asserting
a fraud penalty in future years if adequate records are not kept. This taxpayer should
deposit all sales also as IRS will add up the deposits and compare it with gross
sales.

[BOB W]

Problem...

... is > they have no ligimate sales records to even compare deposits to.

[S T]

Cash Register

It would seem to me in this day and age with the availability of computers, electronic cash registers, etc, the business owner should invest in something to keep track of sales, sales tax, cashs paid outs, etc.

Even some small businesses I frequent, at the very least have an adding machine tape running for the day!

While employees can still steal, by no rings, voids, merchandise, etc. there needs to be some type of daily sales record, preferably computerized or electronic, otherwise some type of daily sales sheet, receipts recorded or something.

Calif Sales Tax Board, has formulas for various industries, size of location (sq ftg) and the physical location to determine what gross sales should be. When they do audit they always ask for merchandise purchases and do a calculation backwards to arrive at the approximate gross sales using what they have determined as a gross profit percentage (their figures not that actual business operation-averages) I am sure IRS has similar formulas, altho on small businesses I think IRS relies on the local state agencies to report if they find any major discrepancies.

[BOB W]

Followup

Sandy says:

""""Calif Sales Tax Board, has formulas for various industries, size of location (sq ftg) and the physical location to determine what gross sales should be. When they do audit they always ask for merchandise purchases and do a calculation backwards to arrive at the approximate gross sales using what they have determined as a gross profit percentage (their figures not that actual business operation-averages) I am sure IRS has similar formulas, altho on small businesses I think IRS relies on the local state agencies to report if they find any major discrepancies.""""

************************************************** ************************************************** ****
This type of audit happens when it is determined that the business's daily proceedures for capturing sales leaves actual sales open for "intentional and unintentional" misstatements. Intentional misstatements can lead to fraud problems. Unintentional misstatements, probably employee theft, can also lead to fraud problems. A government agency cannot distinguish shortages by root cause, only that there is a misstatement of sales and the resulting P&L effect, plus any sales taxes unpaid.

It is fool-hardy for a business to leave such a potential door open. It is the same as going to an audit for expenses without having a mileage log or other expense receipts, the auditor will disallow those expenses. In the case of recording sales, the auditor will disallow your records, legally, and use their "allow" method to back into your clients sales. This is what happens when inadequit records are presented at an audit.

A business must have a method of capturing each sale, taxable and non-taxable, as well as curbing employee theft. The only way to do this is a cash register with full controls in place. Doing this will stop an auditor from backing into the business's sales, which can be a disaster from all angles.

Here is a link that tells a story: http://www.aicpa.org/PUBS/jofa/jun2002/wells.htm

[dyne]

more inadequate records letter

A Tax Auditor or Agent with IRS may issue an inadequate records letter when during an
audit it is discovered that a taxpayer understated gross receipts or overstated business
expenses, regardless of how good the records appear or whether a cash register
was used. The majority of inadequate records letters are issued to taxpayers
who DID use a cash register. Many taxpayers have had elaborate records yets were
not reporting all of their income; this helps establish that they committed fraud. The bottom
line is that the inadequate records letter may be issued when the taxpayer failed to pay his
proper tax for ANY reason. I saw a taxpayer who turned his cash register tape over
and had sales printed on the back side of the tape because he was too cheap to
purchase enough rolls of paper and he also did not report all of his gross receipts.

[BOB W]

???

I'm not sure where you are going with this? Are you saying that it doesn't matter whether a register is used or not? Are you saying Employee theft does not need to be controlled? Are you saying nothing matters because it is a crap shoot anyway?

[dyne]

even more inadequate records letter

Of course a cash register should be used for most businesses and employee theft should
be controlled. My point was that the reason that IRS issues an inadequate records letter
is because the taxpayer did not report and pay his proper tax liability, usually because
gross receipts were under reported. The inadequate records letter is issued to put the
taxpayer on notice that he should improve his record keeping so that the records
reflect his total correct income and tax liaiblity and if he does not do so, he can expect to
suffer the consequences.. About 2/3 of taxpayers who recieve an inadequate records letter will see the light of day and begin to pay their proper tax liaiblity. The other 1/3 will continue to file fraudulent tax returns and IRS will take appropriate enforcement action against them. The point is to foster voluntary compliance with the tax laws. Most business owners keep what APPEARS to be good records even though their total gross receipts may not be reported. The records are inadequate in that they do not tell the truth.