Running a business
Bookkeeping Basics for Small Business Owners: What to Track and How Long to Keep It
Simple bookkeeping for small businesses: what records the IRS expects, cash vs. accrual, a weekly routine, and how long to keep your records and receipts.
Last reviewed October 20, 2026 · 6 min read
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Good books make tax time easier. They also show you if you're actually making money.
What you'll need
A separate business bank account (and card, if you use one)
A bookkeeping tool: software or a simple spreadsheet
A place to store receipts (a folder or scanned copies)
30 minutes a week on your calendar
What records does the IRS expect?
The IRS says your system should include a summary of your business transactions, usually in your books (journals and ledgers). Then keep supporting documents that back up each entry.
Record typeGross receipts
What it isMoney your business takes in
Examples from the IRSDeposit info, receipt books, invoices, Forms 1099
Record typePurchases
What it isItems you buy to resell or make products
Examples from the IRSInvoices, credit card receipts, proof of payment
Record typeExpenses
What it isOther costs of running the business
Examples from the IRSAccount statements, receipts, invoices
Record typeAssets
What it isEquipment and property you use
Examples from the IRSPurchase price, date, improvements, depreciation
Record typeEmployment taxes
What it isPayroll records
Examples from the IRSKeep at least 4 years
| Record type | What it is | Examples from the IRS |
|---|---|---|
| Gross receipts | Money your business takes in | Deposit info, receipt books, invoices, Forms 1099 |
| Purchases | Items you buy to resell or make products | Invoices, credit card receipts, proof of payment |
| Expenses | Other costs of running the business | Account statements, receipts, invoices |
| Assets | Equipment and property you use | Purchase price, date, improvements, depreciation |
| Employment taxes | Payroll records | Keep at least 4 years |
For each expense, the IRS says your documents should show who you paid, the amount, proof of payment, the date, and what it was for.
Cash or accrual: which should I use?
Cash method: You record a sale when the money arrives. The SBA says it shows cash flow clearly and is easier to understand.
Accrual method: You record a sale when it happens, even if you're paid later. The SBA notes it gives an immediate snapshot but is more complex to manage.
Ask a tax pro before choosing, since the method you use affects your tax return.
How do I set up simple bookkeeping, step by step?
Open a business bank account. Keeping business money separate makes every other step easier. See separate business and personal finances.
Pick a tool. Accounting software can import bank transactions. A spreadsheet works if you have few transactions.
Set up categories. Use income and expense categories that match your tax return, like supplies, advertising, insurance, and vehicle.
Save every receipt. Scan or photograph paper receipts. The IRS says electronic records must meet the same rules as paper.
Do a weekly routine. Record or categorize transactions, match them to receipts, and send unpaid invoices reminders.
Reconcile monthly. Compare your books to your bank statement so they match.
Set aside tax money. The IRS says sole proprietors and partners usually make quarterly estimated payments if they expect to owe $1,000 or more.
Review a simple report. Each month, look at income minus expenses (your profit and loss).
How long should I keep records?
SituationMost income tax records
Keep records for3 years after you file
SituationYou file a claim for credit or refund after filing
Keep records for3 years from filing or 2 years from paying, whichever is later
SituationYou didn't report income that's over 25% of the gross income on your return
Keep records for6 years
SituationLoss from worthless securities or bad debt
Keep records for7 years
SituationEmployment tax records
Keep records forAt least 4 years after the tax is due or paid, whichever is later
SituationYou didn't file, or filed a fraudulent return
Keep records forIndefinitely
| Situation | Keep records for |
|---|---|
| Most income tax records | 3 years after you file |
| You file a claim for credit or refund after filing | 3 years from filing or 2 years from paying, whichever is later |
| You didn't report income that's over 25% of the gross income on your return | 6 years |
| Loss from worthless securities or bad debt | 7 years |
| Employment tax records | At least 4 years after the tax is due or paid, whichever is later |
| You didn't file, or filed a fraudulent return | Indefinitely |
The IRS says to keep records on property (like equipment) until the period of limitations ends for the year you sell or dispose of it. Lenders, insurers, and state agencies may have their own rules, so check before you shred.
What it costs
OptionSpreadsheet
CostFree
OptionAccounting software
CostMonthly subscription; prices vary by plan
OptionBookkeeper or accountant
CostVaries by provider and workload
| Option | Cost |
|---|---|
| Spreadsheet | Free |
| Accounting software | Monthly subscription; prices vary by plan |
| Bookkeeper or accountant | Varies by provider and workload |
How long it takes
These are our planning suggestions, not official figures.
TaskInitial setup
Suggested timeAn afternoon
TaskWeekly routine
Suggested timeBlock 30 minutes
TaskMonthly reconcile
Suggested timeBlock an hour
| Task | Suggested time |
|---|---|
| Initial setup | An afternoon |
| Weekly routine | Block 30 minutes |
| Monthly reconcile | Block an hour |
Curious how AI can cut your admin time? We'll map that in a free AI plan.
This is general information, not legal or tax advice. Fees and rules change, so please check the linked official pages before you file or pay.
Questions people ask
Does the IRS require a specific bookkeeping system?
No. The IRS says you can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Software is fine, and electronic records must meet the same rules as paper.
How long should I keep business records?
The IRS says it depends on the record. Many income tax records should be kept 3 years after you file, employment tax records at least 4 years, and some records 6 or 7 years or longer.
What is the difference between cash and accrual accounting?
The SBA explains that the cash method records a sale when you are paid, while the accrual method records it when the sale happens. The SBA says cash is easier to understand, while accrual gives an immediate snapshot but is more complex to manage.
What receipts should I keep?
The IRS lists sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks as supporting documents. For expenses, your records should show who you paid, how much, proof of payment, the date, and what it was for.
Can I do my own bookkeeping?
Yes, many owners start that way. A weekly routine and simple software go a long way. Consider a bookkeeper or tax pro once you have employees, inventory, or more transactions than you can keep up with.
We can go over the week with you and pick the change that gives you time back.
Book a Business Boost CallWords to know
Bookkeeping: Recording every dollar that comes in and goes out of your business.
Receipt: Proof of a purchase or payment, on paper or digital.
Reconcile: Check that your records match your bank statement.
EIN: Employer Identification Number. Your business's federal tax ID number, free from the IRS.
Sources
- Recordkeeping - IRS · irs.gov
- What kind of records should I keep - IRS · irs.gov
- How long should I keep records - IRS · irs.gov
- Manage your finances - U.S. Small Business Administration · sba.gov
- Estimated taxes - IRS · irs.gov
This is general information for Sacramento and Northern California businesses. We are not attorneys or tax advisors, and this is not legal or tax advice. Check the official sources, and a local pro, before you act.