Bookkeeping basics for small-business owners

What bookkeeping is (and is not)

Bookkeeping is the record. Accounting is what you do with that record at tax time or when you need advice. The two get blended in conversation. They are not the same job. See bookkeeper vs accountant if you are hiring.

Bookkeeping is also not 'keeping receipts in a folder.' Receipts support the record. The record is the ledger: each transaction coded, dated, and (if you use double-entry) balanced.

The records you actually need

Keep enough to reconstruct any month without email archaeology.

• Bank and credit-card statements for every account the business uses, including the owner's card if it pays business charges.
• Invoices you sent and bills you received, with dates and amounts.
• Payroll reports if you have employees or a regular draw through payroll.
• Sales-tax filings and the reports that support them.
• Loan statements and the original note, so principal and interest stay split.
• Receipts for expenses you will deduct. A bank line that says AMAZON is not a receipt.

Five principles that keep the books honest

People search for 'the five principles of bookkeeping.' The useful version for a small shop is this:

1. Every transaction is recorded. If it hit the bank or the card, it is in the books.
2. Every transaction has a category that matches what it actually was, not a junk drawer named Miscellaneous.
3. Income and expenses land in the month they belong (accrual) or the month cash moved (cash). Pick one method and stay on it.
4. The books are reconciled to the bank and cards before you trust the reports.
5. Owner money in and owner money out is equity, not a random expense.

Double-entry in plain English

Every transaction hits at least two accounts. You buy $200 of supplies on a credit card: supplies expense goes up, the credit-card liability goes up. You pay the card from checking: the liability goes down, cash goes down. The books stay in balance.

That is double-entry bookkeeping. QuickBooks Online and Xero do this in the background. You still have to pick the right accounts. A spreadsheet that only lists spending is single-entry. It can work at very low volume. It will not give you a balance sheet you can trust.

Chart of accounts without the jargon

The chart of accounts is the list of buckets: assets, liabilities, equity, income, and expenses. Start from the default list in QuickBooks or Xero and delete what you will never use. Add a few that match how you actually spend (job materials, subcontractors, merchant fees).

Do not create an account for every vendor. Vendors belong on the bill. The account is the type of cost. Twenty expense accounts you will review beat eighty you will ignore.

A monthly rhythm that fits a 1–50 person shop

During the month: send invoices, enter bills, and clear the bank feed a couple of times a week so the pile stays small.

After month-end: reconcile every account, age AR and AP, check payroll and sales tax, then read the P&L and balance sheet. The full close list is in monthly bookkeeping.

Block two hours on the calendar in the first ten days of the next month. If you skip it, you are not doing bookkeeping. You are storing transactions.

Spreadsheet vs QuickBooks Online vs Xero

A spreadsheet is fine for a handful of transactions and a cash-basis Schedule C. The moment you invoice customers, run payroll, or hold inventory, you want software that does double-entry and bank reconciliation.

QuickBooks Online and Xero both handle that. Pick based on who else has to live in the file (your tax preparer, a part-time bookkeeper) and which payroll and payments you already use. When you are ready to compare tools, the directory is the next step. Do not switch products to avoid reconciling. The habit matters more than the logo.

Frequently asked questions