What is Bookkeeping?

Why keep books
What bookkeeping records

Bookkeeping is recording every financial transaction your business makes, such as sales, payments received, purchases and bills paid, and keeping those records organized so they add up. Accounting then uses those records to prepare and explain financial statements and tax returns.

OpenStax's open textbook Introduction to Business 2e puts it this way: "Bookkeeping, the system used to record a firm's financial transactions, is a routine, clerical process. Accountants take bookkeepers' transactions, classify and summarize the financial information, and then prepare and analyze financial reports" (OpenStax, section 14.3, opened October 29, 2026).

Why keep books

The US Internal Revenue Service's Publication 583 (revised December 2024, opened October 29, 2026) says: "Everyone in business must keep records." It says good records help you:

"Monitor the progress of your business."
"Prepare your financial statements," which "include income (profit and loss) statements and balance sheets."
"Identify source of receipts," which you need "to separate business from nonbusiness receipts and taxable from nontaxable income."

Publication 583 also says: "Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your business that clearly shows your income and expenses." On timing, it says: "Generally, it is best to record transactions on a daily basis." This is US federal tax guidance; ask your accountant what applies to your business.

What bookkeeping records

Every transaction starts with a supporting document. Publication 583 lists "sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks," and says "These documents contain information you need to record in your books."

From those documents, bookkeeping keeps three records, defined here from OpenStax's Principles of Accounting, Volume 1 (chapter 3 key terms):

Journal: a "record of all transactions."
General ledger: a "comprehensive listing of all of a company's accounts with their individual balances."
Trial balance: a "list of all accounts in the general ledger that have nonzero balances," used to check that debits equal credits.

The accounts themselves are listed in a chart of accounts, which OpenStax describes as an "account numbering system that lists all the accounts a business uses in its day-to-day transactions."

Single-entry and double-entry bookkeeping

Publication 583 describes two systems:

Single-entry: "A single-entry system is based on the income statement (profit or loss statement). It can be a simple and practical system if you are starting a small business."
Double-entry: "A double-entry bookkeeping system uses journals and ledgers. Transactions are first entered in a journal and then posted to ledger accounts." It is "self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another."

Under double-entry, Publication 583 says "the total debits must equal the total credits after you post the journal entries to the ledger accounts. If the amounts do not balance, you have made an error and you must find and correct it." For more on the method, see double-entry bookkeeping and journal entries.

Sample month of bookkeeping

This is a sample with invented figures for a fictional consultant, Juniper Studio, for its first month, using double-entry bookkeeping.

Transactions and journal entries

The owner puts $5,000.00 into the business bank account. Debit Cash $5,000.00; credit Owner's Equity $5,000.00.
Juniper Studio invoices a client $2,400.00 for work completed, payable in 30 days. Debit Accounts Receivable $2,400.00; credit Service Revenue $2,400.00.
It pays $300.00 for a software subscription. Debit Software Expense $300.00; credit Cash $300.00.
The client pays $1,500.00 of the invoice. Debit Cash $1,500.00; credit Accounts Receivable $1,500.00.

Each entry's debit equals its credit.

Ledger balances at month-end

Cash: $5,000.00 − $300.00 + $1,500.00 = $6,200.00 (debit balance)
Accounts Receivable: $2,400.00 − $1,500.00 = $900.00 (debit balance)
Software Expense: $300.00 (debit balance)
Owner's Equity: $5,000.00 (credit balance)
Service Revenue: $2,400.00 (credit balance)

Trial balance

Total debits: $6,200.00 + $900.00 + $300.00 = $7,400.00
Total credits: $5,000.00 + $2,400.00 = $7,400.00

The totals match, so the books balance. OpenStax notes that even when the totals are equal, "we are still not guaranteed that a mistake is not present," so a balanced trial balance doesn't rule out, for example, an entry posted to the wrong account. The $900.00 still owed by the client stays in accounts receivable until it's paid.

How long to keep records

Publication 583 says: "You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out." Ask your accountant which periods apply to you.

Where Billed fits

Billed's invoice software and expense tracking pages, opened October 29, 2026, describe some of the records that bookkeeping starts from. They don't describe a general ledger, journal entries or a trial balance.

Invoices: Billed's invoice software page describes creating and sending invoices, and showing "which invoices are paid, partially paid or past due."
Payments recorded: the same page says: "When a client pays by check or cash, record it as an offline payment so all your income is in one place."
Receipts and expenses: Billed's expense tracking page says an expense "records who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry," and that reports "can be filtered by date range and exported for your accountant, bookkeeper or tax software."

Your bookkeeper or accountant records those transactions in your books.

Frequently Asked Questions

What is the difference between bookkeeping and accounting?

Bookkeeping records the business's financial transactions. Accounting takes those records, classifies and summarizes them, and prepares and analyzes financial reports. OpenStax's Introduction to Business 2e describes bookkeeping as "a routine, clerical process" and accounting as "a much broader concept."

What is the difference between single-entry and double-entry bookkeeping?

According to IRS Publication 583, "A single-entry system is based on the income statement (profit or loss statement). It can be a simple and practical system if you are starting a small business." A double-entry system uses journals and ledgers, records every transaction as a debit in one account and a credit in another, and is self-balancing.

Do I have to use a particular bookkeeping system?

For US federal tax purposes, IRS Publication 583 says: "Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your business that clearly shows your income and expenses." Ask your accountant what suits your business.

What documents do I need for bookkeeping?

IRS Publication 583 lists supporting documents including "sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks". They contain the information you record in your books.

Does Billed do bookkeeping?

Billed's invoice software and expense tracking pages, opened October 29, 2026, describe creating invoices, recording the payments you receive, including offline check and cash payments, and tracking expenses with their receipts. They don't describe a general ledger, journal entries or a trial balance. Billed's expense reports can be exported for an accountant, a bookkeeper or tax software.

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What is Bookkeeping? A Simple Guide for Small Business