How to keep the books of a small business, step by step

What keeping the books means

Every sale, purchase, payment and contribution changes what the business has and what it owes. Bookkeeping records each change once, with its date, its amount and the accounts it touches, so that at any moment you can say what the business has earned and what it is worth.

Double entry: every amount, twice

In double-entry bookkeeping each movement is recorded as a debit in one account and a credit in another, for the same amount. Total debits always equal total credits; when they do not, there is a mistake to find before it spreads.

The cycle in five steps

1. Open a chart of accounts: the list of accounts the business will use, grouped into assets, liabilities, equity, income and expenses.
2. Record each movement as a journal entry on the day it happens, with a document behind it: a receipt, an invoice, a bank statement.
3. Post the entries to the general ledger, account by account, to see what each account holds.
4. Check the trial balance: total debits must equal total credits.
5. Prepare the statements: the income statement for the result, the balance sheet for the position.

A worked example: a shop's first month

A shop opens in March. The owner puts in 5,000 in cash, buys shelving for 1,200, sells 3,000 in cash and 800 on credit, pays 1,000 of rent and receives a 400 electricity bill to pay next month. Six movements, six entries:

At the end of the month the shop has made a profit of 2,400 (3,800 of sales less 1,400 of expenses), and its balance sheet adds up to 7,800 on each side. The other guides follow this same month through each step.

Habits that keep the books clean

• Keep every document, and record each week's movements the same week.
• Keep the business's money apart from your own: cash the owner takes out is recorded as a withdrawal.
• Compare the cash and bank accounts with the real balance at least once a month.
• Close each month once it is checked, so nothing can change it afterwards.

A notebook, a spreadsheet or bookkeeping software

A notebook or a spreadsheet works while movements are few, but neither refuses an entry that does not balance, and a figure typed over leaves no trail. Aconta Online keeps the books by double entry in the browser: it refuses any entry whose debits and credits differ, never edits a recorded entry, and keeps the journal book, the general ledger, the trial balance and the statements up to date with every entry. The first company is free, with no card.