Three Types of Records a Retailer Should Keep in Case of an Audit

Picture a bustling retail store with customers moving in and out, transactions ringing up every minute, and shelves being restocked. For any retailer, these transactions represent more than just sales—they are important data points that, when carefully documented, offer a solid foundation for tax season. Audits can have unforeseen stress and expenses, but having the right records organized and accessible can make the difference between seamless operations and costly penalties.

1. Sales records

Sales records capture every sale, helping to substantiate income figures reported to the IRS. Beyond sales slips and receipts, these records demonstrate a retailer's commitment to transparency, documenting both cash and non-cash transactions in detail. These files prove that your clients are not only compliant but prepared, offering clarity in cases of discrepancies during an audit.

• A journal of non-cash transactions affecting accounts payable
• A journal on cash transactions, including any check transactions
• Sales slips, invoices, receipts, cash register receipts and other comparable documents for original sales
• Memorandum accounts, lists and other documents concerned inventories, fixed assets and prepaid items
• Ledger to which these journals and other records have been posted

2. Purchase records

Purchase records substantiate expenses and cost of goods sold (COGS), key components of taxable income calculations. When it’s inventory purchases or tax-exempt supplies, documenting these transactions validates deductions and exemptions claimed, providing auditors with a clear narrative on spending.

• Documentation of purchases subject to state and local taxes
• Documentation of purchases for resale, such as inventory and raw materials
• List of purchases exempt from state and local taxes
• Documents substantiating expenses and cost of goods sold
• Records reflecting the business purposes of purchases
• Proof that sales and use taxes have been paid

3. POS records

Point-of-sale (POS) records capture a store’s daily operations, tracking each sale’s specifics—date, price, sales tax, and more. These records ensure consistency between recorded sales and actual transactions, proving invaluable during an audit and minimizing the likelihood of errors or discrepancies that could flag attention.

• Individual items sold or purchased
• Date of sales or purchase
• Sales or purchase prices
• Sales tax due
• Vendor names
• Invoice numbers and amounts
• POS identification numbers or purchase orders
• Methods of payment

"Clients who don’t adhere to state record keeping requirements run the risk of being penalized by auditors," the article states.