How to do bookkeeping for a small business for the first time

What bookkeeping is for

Bookkeeping is recording every sale, purchase, payment and receipt so you can answer three questions at any time: did we make money, who owes us and whom do we owe, and how much cash do we really have? The same records support your tax returns and any loan application, and they are what the IRS or CRA will ask to see.

Good books do not need to be elaborate. They need to be complete (everything is in), correct (it agrees with the bank) and current (no more than a few weeks behind). A simple routine done every week beats a perfect system done once a year.

Set up the system

Open a business bank account and use it for every business transaction. Add a business credit card if you need one. See how to open a business bank account.
Choose cash or accrual. Cash basis records income when money arrives and expenses when you pay; accrual records them when you invoice and when you receive a bill. Accrual gives a truer picture once you send invoices. See cash vs accrual accounting.
Pick the tool. Double-entry accounting software is the norm because it keeps both sides in balance and produces the reports for you. A spreadsheet can carry a very small business for a few months.
Set up the chart of accounts: the list of categories for income, expenses, what you own and what you owe. Start from a template and keep it short. See how to set up your chart of accounts.
Enter opening balances on the date your books start: bank balances, money customers owe you, bills you owe, loans and equipment. If the business is brand new, the only opening entry may be your first deposit.
Set up sales tax if you collect it: the rates, the agency, and which products are taxable. See how to set up sales tax or the GST/HST guide.
Add your customers, vendors and products or services, so invoices and bills are quick to enter.
Decide where receipts go. A folder on the computer, an envelope per month, or attached to transactions in your software. Pick one and stick to it.

Every week

Send invoices for work done or goods delivered. The invoice template works if you are not using software yet.
Record payments received against the invoices they pay, and deposit cheques and cash.
Enter bills as they arrive, and pay the ones that are due.
Import or enter the bank and card transactions and categorise anything not already recorded: bank fees, card purchases, transfers.
File the receipts for the week.
Look at who owes you. Follow up on anything overdue; see how to collect overdue invoices.

Thirty to sixty minutes, the same time every week, is usually enough for a small business.

Every month

Reconcile each bank and credit card account to its statement. This is the step that proves the books are complete. See how to reconcile a bank account.
Review the uncategorised items and fix anything posted to the wrong account.
Check the receivables and payables ageing reports.
Record anything that does not come through the bank: owner's draws or contributions paid personally, mileage, depreciation if your accountant has set it up.
Run the reports: profit and loss for the month and year to date, and the balance sheet. Compare with last month and the budget if you have one.
Lock the month with a closing date so it cannot change by accident. The monthly closing checklist has the full list.
Back up the books and keep a copy off-site.

Every quarter and year

Sales tax returns on your filing schedule (monthly, quarterly or annually).
Estimated tax or instalments: US owners usually pay estimated tax quarterly; Canadian owners may owe instalments. Set money aside in savings every month.
Payroll returns, if you have employees: quarterly Form 941 in the US, monthly remittances and annual T4s in Canada.
Year-end: count inventory, review fixed assets, send 1099s or T4As to contractors where required, and hand your accountant the trial balance, general ledger and statements. See the year-end closing checklist.

The tax calendar lists the US and Canadian dates.

A first month, worked through

Say you start a small design studio on March 1. Here is what the books record in the first month, and where each item goes:

What happened	How it is recorded
You deposit $5,000 of your own money into the new business account	Bank up $5,000; owner's equity (contributions) up $5,000. Not income.
You buy a $1,800 computer with the business card	Equipment (a fixed asset) up $1,800; credit card liability up $1,800. Your accountant may expense or depreciate it at year-end.
You pay $60 for software and $25 in bank fees	Software and bank fee expenses; bank down $85.
You invoice a client $2,400 plus sales tax	Accounts receivable up; income up $2,400; the tax goes to sales tax payable, not income.
The client pays half the invoice	Bank up; accounts receivable down. No new income: it was counted when you invoiced.
You transfer $1,000 to yourself	Owner's draw up $1,000; bank down. Not an expense.

At the end of March, the profit and loss shows $2,400 of income and $85 of expenses (on the accrual basis). The balance sheet shows the bank balance, the half of the invoice still owed, the computer, the card balance, the sales tax you owe, and your equity after the contribution and the draw. When the bank statement arrives, the reconciliation checks that the bank balance in the books matches it to the cent.

Beginner mistakes

Mixing personal and business money. The most common, and the most expensive at tax time.
Recording owner draws as expenses. Money you take out of a sole proprietorship is not a business expense. See owner draws vs contributions.
Counting sales tax as income. Tax you collect belongs to the government; it should sit in a liability account until you pay it.
Recording a customer payment as new income when it pays an invoice you already recorded. Income gets counted twice.
Treating a loan as income, or loan repayments as an expense. Only the interest is an expense. See how to record a business loan.
Skipping reconciliation. Without it you cannot be sure anything else is right.
Falling behind. Three months of catch-up is much harder than twelve weekly sessions.

Checklist

Set-up, once:

Open a business bank account (and card)
Choose cash or accrual
Choose your bookkeeping software
Set up the chart of accounts
Enter opening balances
Set up sales tax, customers, vendors and products
Decide where receipts are kept

Weekly:

Invoice, record payments received and deposit them
Enter and pay bills
Import and categorise bank and card transactions
File receipts and chase overdue invoices

Monthly:

Reconcile every bank and card account
Review uncategorised items and the ageing reports
Run the profit and loss and balance sheet
Set the closing date and back up

In AcboBooks

AcboBooks is double-entry accounting for Windows that keeps the company file on your own computer, encrypted with your password. It covers each step above: invoices and sales receipts, bills and Pay Bills, bank statement import from OFX, QFX or CSV files with rules for regular payees, reconciliation, A/R and A/P ageing, a profit and loss on either the cash or accrual basis, a closing date with an optional password, and an automatic backup each time the company closes. Attach a photo of a receipt and the receipt reader fills in the vendor, date and total. If you are just starting, the Academy's create your company lesson and the sample company are a good first hour, and the getting started page covers installation.

Sources and official links

Last reviewed October 26, 2026. Government pages change; if a figure here differs from the official page, the official page wins.

Frequently asked questions

Can I do my own bookkeeping?

Yes. Most small businesses can, with a simple weekly routine and a monthly reconciliation. Many owners keep the books themselves and pay an accountant for the year-end and tax returns.

Is a spreadsheet good enough?

For a very small business at the start, a spreadsheet can work. It does not check that your books balance, though, and it gets hard once you have invoices, bills, sales tax or payroll. Most businesses move to double-entry accounting software within the first year.

How much time does bookkeeping take?

For a small service business, often an hour or two a week plus an hour or so at month-end, once the system is set up. Importing bank statements instead of typing them saves the most time.

What is double-entry bookkeeping?

Every transaction is recorded in at least two accounts, with equal debits and credits. A $100 sale paid in cash increases both the bank and income. Because the two sides must always match, errors show up instead of hiding.

When should I hire a bookkeeper?

When the books take more time than you can give them, when you fall more than a month behind, or when you add payroll and sales tax in several places. Even then, keep reviewing the monthly reports yourself.

This article is general information, not tax, legal or accounting advice. Rules and dates change; check the official source or ask your accountant before acting.