Bookkeeping basics for small business

Bookkeeping basics come down to one idea: write down every bit of money that comes in or goes out, with proof and a reason, in a way that adds up. Do that regularly and the tax return, the bank loan and the question "are we making money?" all become easy. Skip it and each one becomes a week of digging. This guide covers what to record, how double entry works in plain words, a monthly routine and when to call an accountant.

What bookkeeping records

Every transaction has four facts: a date, an amount, who it was with, and what it was for. Group them into five kinds:

1. Income. Sales and other money earned.
2. Costs. Rent, software, materials, wages, travel.
3. Assets. What you have: cash in the bank, money customers owe you, equipment, stock.
4. Liabilities. What you owe: supplier bills, loans, taxes due.
5. Owner's share. What the owner put in or took out, and profit left in the business.

Every business, whatever its size, is described by these five. Reports are just different ways of adding them up.

Double entry in plain words

In double entry, every transaction is written twice, in two places, and the two sides must be equal. This is what makes mistakes visible.

Example: you sell a service for 1,000 and the customer pays at once. Money in the bank goes up by 1,000, and income goes up by 1,000. If the customer pays later, you first record that the customer owes you 1,000 (an asset) against income, and when the payment comes you move the 1,000 from "owed to you" to "bank".

A second example: you buy software for 50 on a card. Costs go up by 50 and the bank goes down by 50.

The test is simple: for every entry, what came in must equal what went out. If an entry does not balance, you made a mistake, and it is found in seconds instead of months.

The reports you will use

• Profit and loss. Income minus costs for a period. It tells you if you made money.
• Balance sheet. What you have and what you owe on one date.
• Trial balance. A list of all accounts that proves debits equal credits. If it does not, something is wrong.
• Tax summary. The figures your tax return or sales tax filing needs.
• Cash and what is owed. Not a formal report, but the one owners look at: what is in the bank, what customers owe, what you owe.

A routine that takes an hour a month

1. Collect. Sales invoices, supplier bills, receipts, bank statements, staff expense claims.
2. Record. Enter everything with date, amount, party and purpose.
3. Match the bank. Every line on the bank statement should match an invoice, a bill or an expense. Lines that match nothing are the ones to investigate.
4. Chase. List unpaid customer invoices and send reminders. Our guide to payment reminder emails helps.
5. Check. Run the trial balance and compare profit with last month.
6. Close the month. Lock it so old figures do not change. Fix errors with a new entry in the open month.
7. File what is due. Sales tax, payroll tax, anything with a date.

Choosing a method and a tool

Start with the simplest thing that does not lie to you.

• A spreadsheet works for a sole trader with a few transactions a week. The risk is silent formula errors and no lock on old months.
• Accounting software brings double entry, bank matching and reports. The big names are strong on tax filings in their home countries. Check that the tool handles your country's sales tax and filings before you commit.
• An accountant or bookkeeper can do all of it for a fee. Many owners keep the receipts and invoices and hand the rest to a person each month.

Whichever you use, get an accountant's view on the basics for your country: cash or accrual, sales tax registration, what you must keep and for how long, and which year end to choose. One hour at the start saves many later. A simple budget template helps you plan against the real figures you now have.

Common mistakes

• Mixing personal and business money. Use a separate account from day one.
• Entering things late and from memory. Details are lost within weeks.
• No receipts. A bank line without a document is hard to defend. See expense tracking for small teams.
• Ignoring the bank match. It is the best check you have.
• Editing closed months. The tax return you already filed no longer matches.
• Treating the owner's withdrawals as costs. They are a movement of the owner's share, not a business expense.

Bookkeeping in nerix

nerix has a Money place on Business workspaces, and it follows these basics. It has accounts (what you have, what you owe, owner's share), and entries made of lines that must balance before you post them. A posted entry is never edited, only reversed with a reason. Invoices, expenses and payroll post into it when those places are on, and are marked so that you can trace and reverse them from the source.

For the bank, you add an account and bring in a statement. For each line you accept a suggested match (an invoice, an expense or your own rule, marked very likely, likely or possible), put it in an account, or leave it out. Reports are the trial balance, profit and loss, balance sheet and tax summary for any dates, and you can print them. "Close the month" locks closed months and needs everything matched first.

Two limits. nerix records money, it does not move it. And the assistant explains the figures but does not give tax or legal advice and never posts, reverses, closes or matches anything without a person confirming. Your accountant is still the right person to confirm tax treatment for your country. See the Money page and Pricing.

A worked example month

A one person design studio sends three invoices in March, for 2,000, 1,500 and 800. Two are paid in March and the third in April. The bank shows 3,500 received in March, and the studio's books show 4,300 earned. Both numbers are right, and they answer different questions: the bank shows cash, the invoices show income. The studio also paid 120 for software, 300 for a shared office desk and 90 for a train ticket. In March the profit and loss shows income of 4,300 and costs of 510, a profit of 3,790, while the bank shows 3,500 in and 510 out, a gain of 2,990. The 800 difference is the unpaid invoice, which the books list as owed to the studio until the money arrives. Seeing that gap each month is how an owner stays out of trouble with cash even when the business is profitable.

The short version

Bookkeeping is writing down every transaction with a date, amount, party and purpose, in a form where two sides always balance. Keep business money separate, match the bank every month, close the month and fix errors with new entries. Start on a sheet if you must, move to software when volume grows, and ask an accountant about the rules of your country at the start.