Bookkeeping Basics for US Small Businesses — Complete 2026 Guide

Quick Answer

Every US small business needs proper bookkeeping. Here's what you need to know:

• Choose cash or accrual accounting method
• Set up a chart of accounts (assets, liabilities, equity, revenue, expenses)
• Track every transaction with source documents
• Reconcile bank accounts monthly
• Keep records for at least 3 years (IRS requirement)

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Cash vs Accrual Accounting

| Feature | Cash Basis | Accrual Basis | |---|---|---| | Revenue recorded | When cash received | When earned | | Expenses recorded | When cash paid | When incurred | | Best for | Small businesses < $25M | Businesses > $25M, inventory-heavy | | IRS requirement | Optional under $25M | Required if > $25M gross receipts | | Complexity | Simple | More complex |

💡 IRS Rule: If your business has more than $25 million in average annual gross receipts over the prior 3 years, you must use accrual accounting (IRC §448).

Essential Chart of Accounts

Asset Accounts (1000-1999)

• 1000 — Cash / Checking Account
• 1100 — Accounts Receivable
• 1200 — Inventory
• 1500 — Equipment
• 1600 — Accumulated Depreciation

Liability Accounts (2000-2999)

• 2000 — Accounts Payable
• 2100 — Credit Card Payable
• 2200 — Payroll Taxes Payable
• 2300 — Sales Tax Payable

Revenue Accounts (4000-4999)

• 4000 — Sales Revenue
• 4100 — Service Revenue
• 4500 — Interest Income

Expense Accounts (5000-6999)

• 5000 — Cost of Goods Sold
• 6000 — Rent Expense
• 6100 — Utilities
• 6200 — Payroll Expense
• 6300 — Insurance
• 6400 — Office Supplies

IRS Recordkeeping Requirements

The IRS requires you to keep records that support your income, deductions, and credits:

• Income records: Receipts, invoices, bank statements
• Expense records: Cancelled checks, credit card statements, receipts
• Asset records: Purchase documents, improvement costs
• Employment records: W-2s, W-4s, payroll records

How Long to Keep Records

| Document Type | Retention Period | |---|---| | Tax returns | 3 years (6 if underreporting > 25%) | | Employment tax records | 4 years | | Asset/property records | Until disposition + 3 years | | Bad debt deduction records | 7 years |

Monthly Bookkeeping Checklist

1. ✅ Categorize all transactions
2. ✅ Reconcile bank and credit card statements
3. ✅ Send invoices for outstanding receivables
4. ✅ Review accounts payable and pay vendors
5. ✅ Process payroll and deposit taxes
6. ✅ Review P&L statement
7. ✅ Back up financial data

Frequently Asked Questions

Do I need a CPA or can I do bookkeeping myself?

For basic bookkeeping, many small business owners use QuickBooks or Xero and handle it themselves. However, for tax preparation, payroll compliance, and financial statements, a CPA is recommended. Many businesses outsource bookkeeping to save time.

What's the difference between bookkeeping and accounting?

Bookkeeping is recording daily financial transactions. Accounting involves analyzing, interpreting, and reporting financial data. Bookkeeping is a subset of accounting.

Which software is best for US small business bookkeeping?

QuickBooks Online is the most popular (60%+ market share). Xero and FreshBooks are strong alternatives. Wave is a free option for very small businesses.