Small Business Bookkeeping Guide

1. Welcome to the Small Business Guide to Bookkeeping

Next Read: Bookkeeping 101: What a General Ledger is and How to Use One


Welcome to the Small Business Guide to Bookkeeping

May 23, 2023 • 10+ min read
Difference Between Bookkeeping and Accounting
Table of Contents

      This guide aims to provide you with the necessary knowledge and practical steps to successfully set up and manage your company’s books. Throughout this guide, we will break down complex accounting concepts and give you step-by-step instructions for entering common transactions.

      What is bookkeeping?

      Bookkeeping is the collection of data from various sources and entering it into your company’s accounting system—but there’s more to it than just data entry.

      Bookkeeping involves keeping track of income, expenses, assets, liability, and equity. These figures are compiled into financial statements to give you a complete picture of your company’s financial health. 

      At its most basic, bookkeeping consists of the recording all financial transactions—such as sales, purchases, payments, and receipts—in a structured manner. It includes categorizing transactions, assigning them to appropriate accounts, and ensuring that they are accurately documented and properly classified.

      Bookkeeping keeps your financial records up-to-date, so you can make timely decisions.

      Bookkeeping vs. accounting

      Bookkeeping and accounting are closely related, but distinct, disciplines within the financial management of a business. While they are interconnected, they serve different purposes and involve different levels of analysis and interpretation.

      Bookkeeping is the process of recording and organizing financial transactions in a systematic manner. It focuses on the accurate and detailed recording of daily financial activities, such as sales, purchases, receipts, and payments. Bookkeeping tasks typically include data entry, maintaining general ledgers, reconciling bank statements, and generating basic financial reports.

      Accounting, on the other hand, encompasses a broader scope and involves interpreting, analyzing, and summarizing the financial information generated through bookkeeping. It goes beyond the recording of transactions and delves into the deeper analysis of financial data to provide insights and support decision-making. Accounting activities may include financial statement analysis, budgeting, forecasting, tax planning, and strategic financial management.

      Why bookkeeping is important.

      Bookkeeping is essential to your business’ health for several reasons:

      Financial management

      Bookkeeping provides small business owners with accurate and up-to-date financial records that allow them to effectively manage their finances. By tracking income, expenses, and cash flow, owners can make informed decisions regarding budgeting, pricing, cost management, and investments.

      Compliance with tax regulations

      Bookkeeping ensures that businesses meet their tax obligations. By maintaining organized and accurate financial records, businesses can calculate and report their income accurately, claim eligible deductions, and fulfill their tax filing requirements. This helps avoid penalties, audits, and legal issues related to improper tax reporting.

      Business performance evaluation

      Bookkeeping helps with the evaluation of financial performance. Through financial statements and reports derived from bookkeeping records, owners can assess profitability, identify trends, measure growth, and compare their performance against industry benchmarks. This information helps in identifying areas of improvement, setting goals, and making strategic decisions.

      Financial planning and forecasting

      Accurate bookkeeping data serves as the basis for financial planning and forecasting. By analyzing historical financial records, businesses can project future revenues, expenses, and cash flow, aiding in budgeting, goal-setting, and resource allocation. This allows for better financial management and helps businesses plan for future growth and expansion.

      Stakeholder communication

      Bookkeeping facilitates effective communication with stakeholders, such as investors, lenders, and partners. Accurate financial records and reports instill confidence and trust in stakeholders, providing them with the necessary information to assess the financial health and viability of the business. This is particularly important when seeking financing, partnerships, or attracting potential investors.

      Guide overview

      Below is a summary of each of this guide’s chapters and what you will learn as you go through it.

      Chapter 1: General Ledger

      Learn what a general ledger is and how to use one.

      The general ledger is the record of all the business’ transactions for each account. The transactions are grouped by account and every transaction for the specified time period is included.

      Chapter 2: Cash Vs. Accrual Accounting 

      Understand the two methods of accounting and select one for your business.

      Cash and accrual accounting are two methods used to record revenue and expenses. Cash accounting recognizes transactions when cash is received or paid, while accrual accounting records them when they are earned or incurred, regardless of cash flow. Understanding the differences between these methods is crucial for accurate financial reporting and decision-making.

      Chapter 3: Bank Reconciliation

      Go step by step through the bank reconciliation process.

      Bank reconciliation is the process of comparing the balances of a company’s bank statements with its own records to identify and resolve discrepancies. It ensures that all transactions are accurately recorded and helps detect errors, fraud, or bank-related issues.

      Chapter 4: Accounts Receivable

      Learn how to record accounts receivable.

      Accounts receivable refers to the money owed to a business by its customers for goods or services provided on credit. Managing accounts receivable involves tracking outstanding invoices, collecting payments, and maintaining a healthy cash flow.

      Chapter 5: Accounts Payable

      Learn how to record accounts payable.

      Accounts payable encompasses the debts a business owes to its suppliers or vendors for goods or services received. Proper management of accounts payable involves tracking and paying bills on time, maintaining positive relationships with vendors, and effectively managing cash flow.

      Chapter 6: How to Do Payroll 

      Learn how to set up payroll as you bring on employees.

      Payroll involves calculating and disbursing employee wages, deducting taxes and other withholdings, and ensuring compliance with payroll tax regulations. Proper payroll management is crucial for accurate financial reporting and meeting legal requirements.

      Chapter 7: Closing the Books 

      Prepare to close the books.

      ‘Closing the books’ refers to the process of finalizing a company’s financial records for a specific accounting period. It involves reconciling accounts, adjusting entries, and preparing financial statements to accurately reflect its financial position and results of operations.

      Chapter 8: Accounting Software For Small Business

      Compare and contrast accounting software to find the right one for your business.

      Accounting software tailored for small businesses can streamline financial management processes, including recording transactions, generating invoices, tracking expenses, and preparing financial reports. It improves efficiency and accuracy, making it an essential tool for small business owners.

      Chapter 9:  Hire Bookkeeping Service 

      Learn what to look for when hiring a bookkeeping service.

      Hiring a bookkeeping service can relieve business owners of the burden of managing financial records and ensure accurate and timely bookkeeping. Outsourcing bookkeeping tasks to professionals allows business owners to focus on core operations, while maintaining financial transparency.

      Chapter 10: Bookkeeping Courses 

      Expand your bookkeeping knowledge with our recommended courses.

      Bookkeeping courses provide individuals with the knowledge and skills required for proper bookkeeping. These courses cover topics such as recording transactions, financial statement preparation, and using accounting software, empowering individuals to manage their own bookkeeping needs or pursue a career in the field.

      Chapter 11: Financial Statement

      Dive into using and analyzing your financial statement.

      Financial statements are formal records that present the financial performance and position of a business. They include the balance sheet, income statement, and cash flow statement, providing valuable insights into a company’s financial health.

      Chapter 12: Why Are Financial Statements Important?

      Learn about the purpose of financial reporting and how it will benefit your business.

      Financial statements are essential for decision-making, assessing the profitability and stability of a business, securing financing, attracting investors, and meeting regulatory requirements. They provide a clear picture of the company’s financial performance, enabling stakeholders to make informed decisions.

      Chapter 13: Balance Sheet 

      Dive into using and analyzing your balance sheet.

      A balance sheet is a financial statement that presents a company’s assets, liabilities, and shareholders’ equity at a specific point in time. It provides a snapshot of the company’s financial position.

      Chapter 14: Income Statement

      Dive into using and analyzing your income statement.

      An income statement (also known as a profit and loss statement) summarizes a company’s revenues, expenses, and net income or loss over a specific period of time.

      Chapter 15: Cash Flow Statement

      Dive into using and analyzing your cash flow statement.

      A cash flow statement provides an overview of a company’s cash inflows and outflows during a given period. It helps assess the company’s ability to generate and manage cash, providing insights into its operating, investing, and financing activities.

      How to do bookkeeping quick guide.

      Bookkeeping is an essential task for businesses to keep track of their financial transactions accurately. Here is a quick overview of the important steps involved in bookkeeping:

      1. Set up a chart of accounts – Create a chart of accounts to categorize and organize different types of transactions. This will help you track income, expenses, assets, liabilities, and equity.
      1. Record financial transactions – Record all financial transactions, including sales, purchases, expenses, and payments. Use appropriate journals—such as the cash receipts journal and cash disbursements journal—to track cash flow.
      1. Maintain general ledger – Transfer the transaction details from journals to the general ledger. This step involves posting debits and credits to the proper accounts.
      1. Reconcile bank statements – Regularly reconcile your bank statements with your accounting records to ensure accuracy and identify any discrepancies.
      1. Track accounts receivable – Keep a record of customer invoices and track accounts receivable. Monitor outstanding payments and follow up on overdue invoices.
      1. Manage accounts payable – Stay on top of your vendor invoices and track accounts payable. Ensure timely payments to maintain good relationships with your suppliers.
      1. Perform regular inventory checks – If applicable, conduct regular inventory counts to accurately track inventory levels and value.
      1. Generate financial reports – Prepare financial reports—including the balance sheet, income statement, and cash flow statement—to assess the financial health of your business.
      1. Close the books – At the end of each accounting period, close the books by making necessary adjusting entries—such as accruals and prepayments—and prepare financial statements.
      1. Store and organize financial documents – Keep copies of invoices, receipts, bank statements, and other financial documents in an organized manner for future reference and audits.
      1. Seek professional help if needed – If bookkeeping becomes overwhelming or complex, consider hiring a professional bookkeeper or accountant to assist you with the process.

      Remember, accurate bookkeeping is crucial for making informed business decisions, ensuring compliance with tax regulations, and maintaining financial transparency.


      Yes, as a business owner, you can do your own bookkeeping, if you have a basic understanding of bookkeeping principles and are willing to dedicate time and effort to maintaining accurate records. However, it is advisable to seek professional guidance or use accounting software to ensure compliance with accounting standards and to effectively manage your financial transactions.

      Small businesses typically use single-entry bookkeeping or double-entry bookkeeping for their financial record-keeping. Single-entry bookkeeping is a simpler method where transactions are recorded in a single account, such as a cash book, without a formalized system of debits and credits. It is commonly used by small businesses with straightforward financial transactions. 

      On the other hand, double-entry bookkeeping is a more comprehensive and accurate method. It involves recording transactions in at least two accounts, ensuring that debits and credits are balanced. Double-entry bookkeeping provides a complete picture of a company’s financial position and is commonly used by small businesses that require more detailed financial reporting and analysis.

      Many bookkeepers and small businesses use accounting software to streamline their bookkeeping processes. QuickBooks, developed by Intuit, is one of the most popular and widely used accounting software programs. It offers various products tailored to different business sizes and needs, providing features for invoicing, expense tracking, bank reconciliation, financial reporting, and more. Other commonly used accounting software options include Xero, Sage, and Wave. 

      Your choice of software depends on the specific requirements and preferences of the bookkeeper or business, as well as factors such as cost, scalability, and integration capabilities with other business tools and systems.

      About the author
      Casey Long

      Casey Long is a CPA with over 15 years of experience. She has spent her career explaining complex financial concepts to various audiences. She started as a bookkeeper and worked her way up, so she understands all aspects of accounting processes.

      Share Article:
      Table of Contents

          Business insights right to your inbox

          Subscribe to our weekly newsletter for industry news and business strategies and tips

          Subscribe to the newsletter

          Subscribe to our weekly newsletter for industry news and business strategies and tips.