7 Steps of a Bookkeeping Process

A little process goes a long way!  Whether you do your own bookkeeping or hire the team here at Atlas Bookkeeping, these are necessary steps to set up and maintain a proper bookkeeping system.   Would you believe my cat Zumee was all over my desk as I was trying to write this, sitting on my keyboard and headbutting my hand every time I moved the mouse!  A good process keeps you on track, even when life’s distractions are VERY strong.

Step 1:

Separate your business from your personal expenses

As SOON as you get started, get yourself a business bank account and separate your business and personal expenses.  We personally favor First Republic Bank, but you can choose from many commercial banks with a variety of business banking options. Unfortunately credit unions are not set up for business banking.

Mixing personal and business expenses in the same account is another “tangle of yarn” that can be difficult or nearly impossible to separate out later.  You’ll end up with errors you or your accountants may not easily catch, and errors always cost money.

There’s also a chance of a liability issue later. If you’re running a corporation or an LLC without enough distance between your personal and business finances, there’s a chance that you could be held personally liable for debts incurred by your business.

Step 2:

Choose a bookkeeping system

There are two main bookkeeping methods: single-entry and double-entry bookkeeping.

If your needs are simple and especially for DIY types, single-entry is fin, typically using an Excel spreadsheet and not a more complex software such as Quickbooks.  With single-entry, you’re simply tracking income and expenses, just like your bank account. Assets and liabilities (inventory, equipment and loans) are tracked separately.

Sounds easy, right?  The problem is that single-entry bookkeeping does not scale very well beyond “side hustle” or “hobby” stage.    This is why bookkeepers and accountants use a double-entry system.

With double-entry bookkeeping, all transactions are entered into a journal, and then each item is entered into the general ledger twice, as both a debit and a credit (if you don’t know what that means, we can talk about that another time).   Why the heck would you do things twice?  Double-entry is a much better system for tracking information and making clearer business decisions.   This approach can help you catch mistakes, like a check-and-balance system.

Step 3:

Choose an accounting method: Cash or Accrual

Under cash accounting, you record transactions only once money has exchanged hands. If you bill a customer today, those dollars don’t enter your ledger until the money hits your bank account.  It’s a common system for small business because it’s easy, and it works well for tax prep.   The trouble is: you don’t have a clear picture of what’s really happening with your business when you are only paying attention to cash flow.

With accrual accounting, you record income when you bill your customers, in the form of accounts receivable (even if they don’t pay you for a few months). Same goes for expenses, which you record when you’re billed in the form of accounts payable.

Accrual accounting gives a more realistic idea of your business’ income and expenses during a period of time and provides a long-term view of the business that cash accounting can’t provide.   This is why Atlas Bookkeeping, and many respected bookkeepers and accountants, prefer this method.

Step 4:

Choose the right tools

The way you categorize transactions will depend on your business and industry. Generally speaking, your transactions fall into five account types—assets, liabilities, equity, revenue, and expenses.

Software will help you at least with the basics for entering and categorizing all your transactions.  Quickbooks is the industry standard, though other software exists with features that you might like for your particular business.   Accounting software unfortunately has not advanced to the level that it can understand your business deeply enough to categorize and report everything correctly.  That’s why you need the “human element” and not just at the clerical level, but with the expertise and leadership that Atlas Bookkeeping has in-house to help you.

Step 5:

Make sure your transactions are categorized

Every transaction you make needs to be categorized and entered into your books. This helps your bookkeeper catch more deductions, and will make your life easier if you get audited.

Remember: an unmarked receipt for lunch at a restaurant might not mean much to you six months later. Was it a client lunch? Did you treat your employees after a successful quarter? Properly categorizing and recording your transactions can help you avoid doing all of this extra investigative work later.

If you’re going to be doing your own bookkeeping, it’s worth talking to a pro when you set up your system to make sure the accounts you create align with your industry standards and CPA expectations.

Step 6:

Choose a system for storing your documents

At tax time, the burden is on you to show the validity of all of your expenses, so keeping supporting documents for your financial data like receipts and records is crucial.

Since the IRS accepts digital records, it’s smart to use a cloud-based system like Dropbox, Evernote, or Google Drive. Working with Atlas, your records will be stored securely and accessible 24/7 through our cloud-based online Navigator Tool.

Step 7:

Organize your deductions

The IRS’ golden rule on deductions is that they must be both ordinary (a common expense in your field) and necessary to your business.

But even if an expense is ordinary and necessary, you may still not be able to deduct all of it on your taxes. Just because you do most of your work from your dining room table doesn’t mean that you can deduct your entire monthly rent. Luckily, the IRS has put together a comprehensive guide on business deductions that you can consult if you’re ever unsure about a deduction.

Step 8:

Make bookkeeping a habit

It is SO EASY to push off bookkeeping for so many other business priorities.  We all do it.  Don’t beat yourself up.  Just try and do better.  And let us help you!

Try setting aside and scheduling a ‘bookkeeping day’ once a month to stay on top of your financials.  If you are an Atlas client, we’ll not only keep you on track, but we can get you caught up from everything in the past (for a reasonable price)


Atlas Bookkeeping will Navigate Your Books for Success. Our online Navigator Tool streamlines the process and integrates well with Quickbooks.    Our team of bookkeepers are balanced by our executive leadership of C-suite/founders, so you’ll get accuracy at the “weeds level” along with a bigger picture perspective.  We can support you during initial startup, fundraising, rapid growth, audit or tax prep, M&A, IPO, and any other business dynamics that come your way.

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