Key Takeaways
- DIY bookkeeping works for businesses with fewer than 100 transactions per month and simple structures.
- The core process: Record → Categorize → Reconcile → Report.
- Budget 2-4 hours per week for proper bookkeeping maintenance.
- Scale-up triggers: 200+ monthly transactions, S-Corp structure, or spending 5+ hours weekly.
- Bad DIY bookkeeping costs more to fix than professional bookkeeping costs monthly.
DIY bookkeeping makes sense for some businesses. Early stage. Low transaction volume. Simple structure.
It stops making sense after you’ve spent three hours trying to match a $3,847.92 Stripe deposit to your actual sales. Or when you’re sitting in a coffee shop at 11 PM on a Sunday, desperately categorizing six months of transactions because your CPA needs your books by Monday.
This guide covers the complete DIY bookkeeping process, step by step. But just as important: it tells you when to stop. Because the goal isn’t to become a bookkeeper. It’s to have accurate books that support good business decisions and compliant tax returns.
Table of Contents
Before You Start: Setup Checklist
DIY bookkeeping requires the right foundation. Skip these steps and you’ll create problems that compound over time.
Separate Business Bank Account
This isn’t optional. It’s the baseline.
Mixing personal and business transactions in one account creates a mess that takes hours to untangle. It also undermines your liability protection if you’re an LLC. Courts have pierced the corporate veil over commingled funds.
Open a dedicated business checking account. Use it only for business transactions.
Business Credit Card
Same logic. One card for business expenses. Keep personal purchases off it.
This makes categorization simpler and receipt tracking cleaner. It also builds business credit history, which matters when you need financing.
Bookkeeping Software
You need software that connects to your bank, tracks transactions, and generates reports. Spreadsheets don’t scale.
Popular options:
- QuickBooks Online: Most CPA-compatible. If you work with an accountant, they probably prefer this.
- Xero: Modern interface, good for tech-savvy owners.
- Wave: Free. Adequate for very simple businesses.
- Growthy: AI-powered categorization for high-volume businesses.
See our bookkeeping software comparison for detailed analysis of each option.
Receipt Tracking System
The IRS requires documentation for expenses over $75. You need a system that captures receipts when transactions happen.
Options:
- Dext (formerly Receipt Bank): Scans and categorizes receipts automatically
- Expensify: Good for businesses with travel and employee expenses
- Photo folder: Simple but effective. Take a photo, save it in a dedicated folder
The best system is the one you’ll actually use. Pick something and stick with it.
Chart of Accounts
Your chart of accounts is the list of categories for your transactions. Most software provides a template. Start with that and modify as needed.
Keep it simple. You don’t need 47 expense categories. You need categories that match your tax return requirements and give you useful financial visibility.
For more on setting this up, see our guide on bookkeeping basics.
Step 1: Record Every Transaction
Bookkeeping starts with capturing what happened. Every dollar in, every dollar out.
What Counts as a Transaction
- Bank deposits and withdrawals
- Credit card charges and payments
- Cash transactions (yes, these count too)
- Invoices sent and payments received
- Bills received and payments made
- Transfers between accounts
If money moved, it’s a transaction. Record it.
Bank Feed Connections
Modern bookkeeping software connects directly to your bank accounts. Transactions import automatically, usually within a day or two.
Set this up immediately. It eliminates most manual data entry and ensures you don’t miss transactions.
Bank feeds aren’t perfect. They sometimes categorize things wrong. But they capture everything, which is the foundation.
Manual Entry
Some transactions won’t import automatically:
- Cash payments: That $200 you paid the contractor in cash still happened
- Checks received: Might not show until deposited
- PayPal, Venmo, or other payment platforms: May need separate connections
Build a habit of recording these manually. Weekly is fine. Daily is better.
Timing
Daily is ideal. Transactions are fresh. You remember what that $127 charge was for.
Weekly is acceptable. Set a recurring calendar reminder. Don’t skip it.
Monthly is asking for trouble. By month-end, you’re guessing at half the transactions.
Step 2: Categorize Transactions
Recording transactions is step one. Categorizing them correctly is where accuracy lives or dies.
Why Categorization Matters
Wrong category = wrong tax deduction.
That $500 dinner with a client? If you categorize it as Office Supplies, you’re claiming 100% deduction when only 50% is allowed for meals. That’s a problem if the IRS looks closely.
The categories in your bookkeeping system translate directly to lines on your tax return. Get them right from the start.
Common Expense Categories
| Category | What Goes Here | Tax Treatment |
|---|---|---|
| Advertising & Marketing | Ads, marketing services, promotional materials | 100% deductible |
| Office Supplies | Paper, pens, small equipment under $2,500 | 100% deductible |
| Software & Subscriptions | SaaS tools, software licenses | 100% deductible |
| Professional Services | Legal, accounting, consulting fees | 100% deductible |
| Meals & Entertainment | Client meals, business meals | 50% deductible |
| Travel | Airfare, hotels, car rental for business | 100% deductible |
| Insurance | Business insurance premiums | 100% deductible |
| Rent & Utilities | Office space, utilities | 100% deductible |
Revenue Categories
Keep revenue categories simple:
- Service Income: Money earned from providing services
- Product Sales: Money earned from selling products
- Interest Income: Bank interest, investment returns
- Other Income: Anything that doesn’t fit above
Set Up Categorization Rules
Most software lets you create rules. “Any transaction from Amazon goes to Office Supplies.” “Any transaction from Zoom goes to Software.”
Spend 30 minutes setting up rules for your recurring vendors. It saves hours over the year.
The “Ask My Accountant” Category
Most software has a category for transactions you’re not sure about. Use it sparingly.
The goal: capture uncertainty now, resolve it quarterly. Don’t let unclear transactions pile up until year-end.
Step 3: Reconcile Bank Accounts
Reconciliation is the process of matching your books to your bank statements. It’s how you know your records are accurate.
What Reconciliation Means
At the end of each month, your bank sends a statement showing every transaction and the ending balance.
Reconciliation confirms:
- Every transaction in your books matches a transaction on the statement
- Every transaction on the statement appears in your books
- Your ending balance matches the bank’s ending balance
If they don’t match, something’s wrong. Find it and fix it.
Monthly Process
- Download your bank statement (PDF or data export)
- Compare the ending balance to what your software shows
- Mark each transaction as reconciled as you verify it
- Investigate discrepancies (missing transactions, wrong amounts, duplicates)
- Make adjusting entries if needed
Why This Matters
Reconciliation catches:
- Errors: Duplicate entries, wrong amounts, missing transactions
- Fraud: Unauthorized charges you might otherwise miss
- Bank mistakes: Yes, banks make errors too
If you skip reconciliation, you’re trusting that your books are right without verifying. They’re probably not.
Time Required
Plan for 15-30 minutes per account per month. If you have one checking account and one credit card, that’s an hour total.
If reconciliation takes longer than that, something’s wrong with your process upstream.
Step 4: Reconcile Credit Cards
Same process as bank accounts, with one extra consideration.
The Process
- Wait for your statement to close
- Download the statement
- Match every transaction
- Verify the ending balance
- Investigate and fix discrepancies
Additional Check: Personal Charges
Business credit cards sometimes get used for personal purchases. It happens.
During reconciliation, flag any personal charges. They need to be:
- Reimbursed by the owner (if it was a mistake)
- Recorded as owner draws (if the business paid a personal expense)
- Removed from business expenses
Do not deduct personal expenses. That’s tax fraud.
Timing
Reconcile after your statement closes, before you pay the bill. This gives you time to catch errors while they’re fresh.
Step 5: Handle Accounts Receivable
If you invoice clients, you need to track who owes you money.
Creating and Sending Invoices
Your software should generate invoices with:
- Unique invoice number
- Clear description of services/products
- Payment terms (Net 15, Net 30, etc.)
- Payment instructions
Send invoices promptly. The faster you invoice, the faster you get paid.
Recording Payments Received
When payment arrives:
- Match it to the correct invoice
- Record the payment date and method
- Deposit to the correct bank account
Your accounts receivable balance should decrease by the payment amount.
Following Up on Late Payments
Run an “AR Aging” report weekly. This shows:
- Who owes you money
- How long they’ve owed it
- Total outstanding by age (current, 30 days, 60 days, 90+ days)
Follow up on anything past due. A polite reminder at 7 days past due is more effective than an angry call at 90 days.
Writing Off Uncollectable Invoices
Sometimes clients don’t pay. When you’ve determined an invoice won’t be collected:
- Write it off as bad debt
- Document your collection efforts
- Adjust your accounts receivable
Talk to your CPA about the tax treatment of bad debts.
Step 6: Handle Accounts Payable
Accounts payable is the opposite of receivable: money you owe others.
Recording Bills
Accrual method: Record the bill when you receive it, even if you haven’t paid yet.
Cash method: Record when you actually pay.
Either way, track what you owe and when it’s due.
Scheduling Payments
Know your payment terms and plan accordingly:
- Don’t pay early unless there’s a discount for doing so
- Don’t pay late (damages vendor relationships and may incur fees)
- Batch payments weekly to reduce transaction volume
AP Aging Report
Like AR aging, but for what you owe. Run it weekly to:
- Avoid surprises
- Manage cash flow
- Prioritize payments
Step 7: Generate Monthly Reports
Monthly reports turn raw data into usable information.
Profit & Loss (Income Statement)
What it shows: Revenue minus expenses equals profit (or loss).
What to look for:
- Revenue trends (up, down, flat?)
- Expense spikes (why was marketing 3x higher this month?)
- Profit margins (are you actually making money?)
Balance Sheet
What it shows: Assets, liabilities, and equity at a point in time.
What to look for:
- Cash position (can you pay your bills?)
- Debt levels (is debt increasing?)
- Equity changes (is owner investment going up or down?)
Cash Flow Statement
What it shows: Where cash actually went.
What to look for:
- Operating cash vs. reported profit (they’re often different)
- Major cash outflows (equipment purchases, loan payments)
- Cash runway (how long can you operate at current burn rate?)
Timing
Run reports by the 15th of the following month. January’s books should be closed and reviewed by February 15.
Quarterly Tasks
Beyond monthly maintenance, some tasks happen quarterly.
Estimated Tax Data
If you make quarterly estimated tax payments, your CPA needs current profit data to calculate them.
Close your books promptly after quarter-end. Get your CPA the numbers they need.
Inventory Counts (If Applicable)
Physical inventory counts verify that your records match reality. Quarterly counts catch shrinkage, damage, and errors before they become big problems.
“Ask My Accountant” Cleanup
That category of unclear transactions? Resolve them quarterly. Don’t let questions pile up until tax time.
Catch-Up
Life happens. If you’ve fallen behind, quarter-end is a natural deadline to get current.
Year-End Tasks
Year-end closes the loop on twelve months of bookkeeping.
Verify All Transactions Recorded
Before closing the year, confirm nothing’s missing:
- All December transactions imported and categorized
- All cash transactions recorded
- All inter-account transfers matched
Final Reconciliation
Complete December reconciliation for all accounts. This is your last chance to catch errors before the books lock.
1099 Data Collection
If you paid contractors $600 or more, you need to file 1099-NEC forms by January 31.
Collect W-9s before year-end. Chase them in January and you’ll miss the deadline.
Compile Tax Package for CPA
Organize everything your CPA needs:
- Financial statements (P&L, Balance Sheet)
- Supporting schedules
- Prior year carryforward information
- Documentation for major transactions
Clean, organized data means faster returns and lower fees.
Close the Books
Once your tax return is filed, close the prior year. This prevents accidental changes to historical data.
Scale-Up Triggers: When to Stop DIY
DIY bookkeeping has limits. Recognize when you’ve hit them.
Transaction Volume: 200+ Per Month
At this level, bookkeeping becomes a significant time investment. The volume alone justifies professional help.
Time Investment: 5+ Hours Per Week
Calculate what your time is worth. If you bill $100/hour and spend 5 hours weekly on bookkeeping, that’s $2,000/month of your time.
Professional bookkeeping services cost $400-$800/month. The math is clear.
Entity Structure: S-Corp or Partnership
S-Corps and partnerships have bookkeeping requirements beyond basic categorization:
- Reasonable salary tracking
- Distribution records
- Capital account maintenance
- Specific equity classifications
These are easy to get wrong and expensive to fix.
Complexity: Multiple Revenue Streams, Inventory, Employees
Each complexity layer adds bookkeeping burden:
- Multiple revenue streams need separate tracking
- Inventory requires COGS calculations
- Employees mean payroll compliance
The more moving parts, the stronger the case for professional help.
Errors: Tax Returns Keep Getting Amended
If your CPA keeps finding errors that require amended returns, your bookkeeping process isn’t working. Fix the process.
Stress Level: You Dread Doing It
Bookkeeping that doesn’t happen is worse than imperfect bookkeeping. If you’re avoiding it, something needs to change.
Common DIY Mistakes
Learn from others’ errors.
Inconsistent categorization: The same vendor gets coded to three different categories over the year. Pick one and stick with it.
Skipping reconciliation: Entering transactions without verifying creates false confidence. Reconcile monthly.
Personal expenses in business accounts: Keep them separate. Document any crossover immediately.
Missing cash transactions: Just because it didn’t hit your bank doesn’t mean it didn’t happen.
Wrong entity accounting: If you’re an S-Corp, owner draws and salary are different. Mixing them up creates tax problems.
Waiting until year-end: Twelve months of catch-up is a nightmare. Stay current.
Frequently Asked Questions
How much time does bookkeeping take?
For a simple business with under 100 transactions monthly: 2-4 hours per week. This includes daily categorization, weekly invoice/payment tracking, and monthly reconciliation. More complex businesses or higher transaction volumes require proportionally more time.
What’s the best bookkeeping software for beginners?
QuickBooks Online is the most widely used and has the most CPA compatibility. Wave is free and simpler, good for very small businesses. The best choice depends on your specific needs. See our bookkeeping software comparison for detailed recommendations.
Can I do bookkeeping in Excel?
Technically yes, but you shouldn’t. Excel doesn’t connect to your bank, doesn’t automatically categorize transactions, and doesn’t generate the reports CPAs need. It also has no audit trail. Use proper bookkeeping software.
When should I hire a bookkeeper?
When any of these apply: 200+ monthly transactions, 5+ hours weekly spent on bookkeeping, S-Corp or partnership structure, multiple revenue streams, or you’re consistently behind. Also consider hiring when your hourly rate exceeds what you’d pay a bookkeeper.
What happens if I mess up my bookkeeping?
Small errors get caught during reconciliation or CPA review. Large errors might require amended tax returns, which cost money and invite scrutiny. Persistent errors can result in incorrect tax payments, missed deductions, or IRS penalties. Fix errors when you find them.
Next Steps
DIY bookkeeping works when you have the time, discipline, and a simple enough business to manage it.
If you’ve read this far and feel confident, use our bookkeeping checklist to stay organized. Download it, print it, and check off tasks as you complete them.
If you’ve read this far and feel overwhelmed, that’s useful information too. Maybe DIY isn’t the right answer for your situation.
SDO CPA provides bookkeeping services designed for growing businesses with complex structures. We handle the transaction categorization, reconciliation, and monthly closes so you can focus on the work that actually generates revenue. And because our bookkeeping team works directly with our tax CPAs, your books are always tax-ready. Schedule a bookkeeping assessment to see what clean books could save you.