Audit preparation should start with reconciliation
- Compare sales tax returns to books and income tax returns.
- Reconcile bank deposits to reported gross receipts.
- Identify non-taxable sales and supporting documentation.
- Organize resale certificates and purchase records when relevant.
- Separate owner transfers, loans and other non-sales deposits.
Why bank deposits matter
For cash-intensive and small businesses, auditors may compare bank deposits with reported sales. A clear reconciliation can help distinguish taxable receipts from transfers, loans, refunds or other non-sales items.
Keep tax systems consistent
Sales tax, bookkeeping, income tax and payroll records can overlap. Material inconsistencies should be identified and understood before records are presented.
Deadlines and appeal rights
CDTFA notices and audit correspondence can carry response and appeal deadlines. Review each notice promptly and keep a dated copy of submissions.
Frequently asked questions
What records are used in a sales tax audit?
Common records include sales reports, bank statements, purchase invoices, resale certificates, sales tax returns and accounting records.
Are all bank deposits taxable sales?
No. Bank deposits can include non-sales items, but businesses should be able to document and reconcile those amounts.
Can you help organize records before an audit response?
Yes. D'Ruiz Services can help review and organize accounting and tax records relevant to the request.