bookkeeping-basics

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---
name: bookkeeping-basics
description: Set up and maintain basic bookkeeping for a solopreneur business. Use when tracking income and expenses, preparing for taxes, managing invoices and receipts, understanding cash flow, or generating financial reports. Covers accounting software selection, chart of accounts, expense categorization, reconciliation, and financial statements. Not professional accounting advice — consult a CPA for complex situations. Trigger on "bookkeeping", "accounting", "track expenses", "financial records", "QuickBooks", "invoicing", "receipts", "profit and loss".
---

# Bookkeeping Basics

## Overview
Bookkeeping tracks where money comes from and where it goes. Most solopreneurs hate bookkeeping, so they avoid it — then face chaos at tax time or when applying for loans. This playbook gives you a simple system: minimal time, maximum clarity. **Disclaimer: This is educational content, not professional accounting advice. Consult a CPA for complex situations.**

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## Step 1: Choose Your Accounting Software

Don't use spreadsheets. Use accounting software. It automates most of the work and keeps you compliant.

**Software comparison:**

| Software | Best For | Pricing | Learning Curve | Features |
|---|---|---|---|---|
| **Wave** | Freelancers, very small businesses | Free (pay for payments/payroll) | Easy | Basic invoicing, expense tracking, reports |
| **QuickBooks Online** | Most solopreneurs, scaling businesses | $15-50/month | Medium | Full accounting, invoicing, tax reports, integrations |
| **FreshBooks** | Service businesses, invoicing-heavy | $17-55/month | Easy | Invoicing, time tracking, expense tracking |
| **Xero** | International businesses, contractors | $13-70/month | Medium | Full accounting, multi-currency, payroll |

**Selection guide:**
- Just starting, no revenue yet → Wave (free)
- Revenue < $50K/year → Wave or FreshBooks
- Revenue $50K-250K/year → QuickBooks Online
- International clients or contractors → Xero

**Recommendation:** Start with Wave (free). Upgrade to QuickBooks when you hit $50K revenue or need more features.

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## Step 2: Set Up Your Chart of Accounts

A chart of accounts is a list of categories for organizing income and expenses. Most software comes with defaults — use them unless you have a specific reason to customize.

**Basic chart of accounts (solopreneur):**

### INCOME CATEGORIES:
- Sales Revenue (product/service sales)
- Consulting Revenue
- Other Income (interest, refunds, etc.)

### EXPENSE CATEGORIES:
- **Cost of Goods Sold (COGS):** Direct costs to deliver your product/service (if applicable)
- **Operating Expenses:**
  - Advertising / Marketing
  - Software / Tools / Subscriptions
  - Contractor Payments
  - Office Supplies
  - Professional Services (lawyer, accountant)
  - Travel / Meals (business-related)
  - Insurance
  - Bank Fees / Merchant Fees
  - Home Office Deduction (if applicable)
  - Utilities (if home office)
  - Other Expenses

**Rule:** Don't over-categorize. 10-15 categories max. Too many creates confusion. Too few makes tax prep hard.

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## Step 3: Track Every Transaction

Every dollar in and every dollar out must be recorded. No exceptions.

**Income tracking:**
- Record every payment received (invoice, client name, date, amount)
- Use invoicing software (Wave, QuickBooks, FreshBooks) to generate invoices and track payments automatically
- For cash payments, create manual invoices or receipts

**Expense tracking:**
- Connect your business bank account and credit card to your accounting software (auto-imports transactions)
- Categorize each expense when it imports (software learns patterns over time)
- Save receipts (digital copies, not paper — use apps like Expensify or Shoeboxed, or just your phone camera)

**Receipt rules (IRS):**
- Keep receipts for expenses > $75
- Keep receipts for ALL meals, travel, and entertainment (even under $75)
- Store digitally (cloud storage, accounting software, or receipt app)
- Retain for 7 years