Free course · Lesson 1 of 12 · 8 min
What bookkeeping is, and why it matters
What bookkeeping is, how it differs from accounting, which records to keep and for how long, and a simple routine that keeps the books from piling up.
Bookkeeping Basics / Lesson 1
- Say what bookkeeping is and how it differs from accounting.
- Name the source documents every small business should keep.
- Know how long the IRS and the CRA expect you to keep records.
- Set up a simple daily, weekly and monthly routine.
What bookkeeping is
Bookkeeping is recording every money event in a business in a consistent, organized way: each sale, each purchase, each payment in and each payment out. Done well, it gives you a set of books that can tell you at any moment what the business owns, what it owes, what it has earned and what it cost to earn it.
Accounting uses those records. An accountant analyzes them, prepares financial statements and tax returns, gives advice, and may make adjusting entries at year end. Good bookkeeping is what makes accounting fast and cheap. An accountant handed clean, reconciled books bills far fewer hours than one handed a shoebox of receipts.
Why it matters
- Taxes. Your income tax return, your sales tax or GST/HST returns and your payroll filings all come from the books. Both the IRS and the CRA expect records that support every figure you report.
- Cash. The books show who owes you money and when your own bills are due, so you can see a cash crunch coming weeks ahead.
- Decisions. Is a product or a job profitable? Can you afford to hire? Should you raise prices? The bank balance alone cannot answer those questions.
- Borrowing and selling. Lenders, landlords and buyers ask for financial statements. A business with clean books is easier to finance and easier to sell.
Source documents: what to keep
Every entry in the books should be backed by a source document: something that proves the transaction happened, for how much and with whom.
| Source document | What it proves | Example |
|---|---|---|
| Sales invoice or sales receipt | You sold something, to whom, for how much | Invoice 1042 to a client for $1,800 |
| Supplier bill or purchase receipt | You bought something and what it was for | Office supply receipt for $64.20 |
| Bank and credit card statements | Money actually moved | The monthly statement from each account |
| Payroll records | What you paid employees and what you withheld | Timesheets, pay stubs, W-4 or TD1 forms |
| Deposit records | Cash and cheques you took to the bank | Deposit slips |
| Contracts and loan papers | Longer-term commitments | An equipment loan agreement |
How long to keep records
United States. The IRS says to keep records that support a tax return for at least three years from the date you filed it in most cases. Some situations need longer: six years if you leave out more than 25% of your income, seven years for a bad debt deduction, and indefinitely if you never filed. Keep employment tax records for at least four years.
Canada. The CRA generally requires you to keep books and records for six years from the end of the last tax year they relate to.
Both accept electronic records, including scans and photos of paper receipts, as long as they are legible and complete and you can produce them when asked.
Single entry and double entry
A simple cash book (date, description, money in, money out) is single-entry bookkeeping. It can work for a tiny side business, but it cannot easily track what customers owe you or what you owe suppliers, and it has no built-in way to catch mistakes. Double-entry bookkeeping, the subject of the next lesson, records each transaction in two places so the books check themselves. All mainstream accounting software uses double entry.
Worked example: one week of a small business
Ana runs a mobile dog-grooming business. Here is her week.
| Day | What happened | Money in | Money out | Source document |
|---|---|---|---|---|
| Mon | Groomed 3 dogs, paid by card | $255.00 | Card terminal receipt | |
| Tue | Bought shampoo and towels | $86.40 | Store receipt | |
| Wed | Invoiced a kennel for 6 grooms, due in 30 days | (not yet) | Invoice 17 for $480.00 | |
| Thu | Filled the van with fuel | $72.10 | Fuel receipt | |
| Fri | Groomed 2 dogs, paid in cash | $170.00 | Copy from her receipt book | |
| Totals | $425.00 | $158.50 |
Cash in for the week is $425.00 and cash out is $158.50. But Ana earned $905.00 of revenue, because the kennel owes her $480.00 for work she has already done. A plain cash book would miss that $480.00 until it arrived. Keeping track of money customers owe is the job of accounts receivable, which you will meet in lesson 5.
A routine that works
- As it happens: keep every receipt (photograph paper ones the same day) and issue an invoice or receipt for every sale.
- Weekly: enter or import the week's transactions and follow up on overdue invoices.
- Monthly: reconcile every bank and credit card account to its statement (lesson 7), look over the profit and loss, and file sales tax returns if you file monthly.
- Quarterly and yearly: payroll and sales tax filings, estimated tax payments, and the year-end close (lesson 11).
Key terms
Try it
- Receipt template: Give every cash customer a proper receipt.
- Petty cash log template: Track small cash spending with a source for each line.
- Tax calendar: See the filing dates your routine has to meet.
Check your understanding
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Sources
Part of Bookkeeping Basics, a free course from AcboBooks LLC. General information, not tax, legal or accounting advice. Last reviewed October 25, 2026.