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Day to Day Bookkeeping Setup and processes

Day to Day Bookkeeping Setup and Processes

The process of bookkeeping is essential for any business. It ensures that all financial transactions are accurately recorded, and that important information is readily available.

Setting up the accounting system and creating standard processes can help ensure accuracy and efficiency. Let’s discuss the day to day bookkeeping setup and processes.

What is bookkeeping?

Bookkeeping involves tracking all transactions of any firm, from its start-up to its closing. Depending on the accounting systems used, the business records every financial transaction using supporting documents.

These documents can be receipts, invoices, purchase orders, or similar financial documents that can be used as evidence for the transaction.

To understand the day to day bookkeeping process, you must first familiarize yourself with the steps of the accounting cycle.

Understanding the 8-Step Accounting Cycle

The eight stages of the accounting system begin by capturing individual companies’ transactions, and the process finishes with a complete report of the company activity for the designated cycles.

The 8-step accounting cycle is a process businesses use to track their financial activity. These steps are:

1) Identifying business transactions

2) Posting transactions to journals

3) Post journal entries to the general ledger

4) Prepare unadjusted trial balances

5) Make adjusting entries

6) Prepare an adjusted trial balance

7) Preparing financial statements

8) Closing the books.

Each step ensures that the business’s financial information is accurate and up-to-date.

Let’s dig deeper below.

Identifying Transactions

The first step in the accounting cycle is to identify business transactions. A business begins its accounting cycle by gathering and processing information about its operations during the accounting period.

Operations deals with the day to day income and expenses that the business encounters.

When identifying a transaction, you must classify financial transactions that form an accounting event.

This could be sales revenues, a refund, a payment to a vendor, debt payments, expenses, and many more.

Recording Transactions

Once you’ve identified the transaction, the next step is to record financial transactions in the journal.

Journal entries are recordings of transactions based on a receipt of an invoice, recognition of a sale, or completion of other economic transactions.

It allows you to post business finances to the company’s books. In turn, you’ll gain insight into the company’s financial health and stay compliant with rules and regulations.

Posting Entries to General Ledger

After a financial transaction has been recorded as a journal entry, the information will typically post to the general ledger.

The general ledger allows you to view all accounting activities by specific accounts. This is called the chart of accounts.

The chart of accounts displays any cash account, expense account, asset account, and equity account.

Below is a list of accounts you may encounter in the general ledger.

1)Asset accounts with sub-accounts such as cash accounts or accounts receivables

2) Liability accounts with sub-accounts such as accounts payable

3) Equity accounts such as owner’s draw or contributions

4) Income accounts

5) Expense accounts

Unadjusted Trial Balance

An unadjusted trial balance is prepared after the company posts journal entries to individual general ledger accounts. The unadjusted trial balance ensures that total debits equal total credits in the financial records.

Every transaction must have two entries, also known as the double entry bookkeeping system. This is where a debit and a credit is recorded to balance out to zero.

Suppose total debits and credits don’t balance out. In that case, something is either not accounted for, or there was an error somewhere along the way.

This process normally identifies irregularities, such as payments that were supposed to clear but didn’t or payments you entered as paid in full when in all reality, it was partially paid.

Adjusting Entries

If your transaction does not balance, you can post an adjusted entry. Adjusting entries are adjustments to your books to correct mistakes on income and expenses. This is a crucial process for financial reporting purposes.

Adjusting entries will usually be posted at the end of the month or the year to generate month end or year end financial statements.

Adjusted Trial Balance

An adjusted trial balance is a list of every company account that is reflected in the financial statements after year end adjusting journal entries have been made.

Trial balance preparation is the last accounting act in the cycle, and finalizing it gives rise to financial statements.

The adjusted trial balance accounts are listed according to their account number or balance sheet order.

The balance sheet order starts with the asset, liability, and equity accounts and ending with the income and expense accounts.

Similar to the unadjusted trial balance, it ensures that the total debits are equal to the total credits, so everything is recorded correctly.

Financial Statements

The next step in the accounting cycle is to prepare financial statements. Most companies analyze their balance sheet and income statement to get a deep understanding of their business.

The balance sheet allows you to see the business’s assets, liabilities, and overall equity. The income statement provides an overview of the business’s finances. This is where you can view the company’s income and expenses.

A business owner can also run a cash flow statement to identify the inflows and outflows of their business. This allows them to keep tabs on what they’re spending money on and how it’s affecting their bank accounts.

Cash flow statements give business owners a complete picture of all the money coming in and out of their business.

Financial reports are one of the most important outcomes of the accounting cycle. They will help anyone, including business owners, to compare business operations with others.

Getting acquainted with these statements allows you to track your finances and develop advanced growth strategies.

Closing the books

The final step in the accounting cycle is to document closing entries by finalizing expenses, revenues, and temporary accounts at the end of an accounting period.

To do so, you can close accounts that are no longer needed, like temporary income and expense accounts. Suppose the business has remaining profits that are not distributed to its owners. In that case, it is transferred to the retained earnings account.

Now that we understand the accounting cycle let’s get into setting up bookkeeping and processes.

Setting up your General Ledger

In the past, business records were recorded in a physical document known as the ledger. Nowadays, general ledgers can be found on the computer or on the web. Small businesses can organize their operations with an excel spreadsheet or accounting software.

No matter which option you choose, all businesses must record transactions in their ledgers.

A journal entry is made when you record transactions in a common ledger. There are various methods for creating a ledger.

Although an accounting software automatically generates a ledger for your business, you can create your own from scratch.

To do so, outline a sheet of paper or excel sheet with the date, description / transaction type, account number, debit, credit, and balance.

It should look something like the image below.

General Ledger format

Do remember, a ledger consists of five accounts: the assets, liabilities, equity, income, and expense accounts. When recording transactions in the ledger, be sure to include the account number to cross-reference transactions.

Also, make sure you are debiting and crediting the correct account. Check out an easy-to-use trial balance tool I’ve created to assist debiting and crediting accounts.

Lastly, always jog down the total balance for each transaction. This allows you to quickly glance the total balance of debits and credits to ensure everything balances out.

Examples of Recording Journal Entries to the General Ledger

Here’s an example of posting a transaction in the general ledger.

Suppose you’ve sold a product for $1,300 and received cash for the product you just sold.

To record that transaction, you must first determine the accounts that will be debited and credited. Because you received an asset which is cash, you will debit cash.

Sales will be credited because you’ve sold something and gave something of value away.

sold goods and received cash journal entry


Now suppose a transaction is not as simple and you need to record a sale with sales tax. You can do so by splitting the sales transaction to equal the total cash you’ve received.

See example below

Posting sales of goods with taxes general ledger

After you’ve recorded and separated your sales tax. You later have to remit those taxes to your local government / state you operate business in.

To record a sales tax transaction, debit sales tax payable and credit cash.

See example below:

Recording a sale transaction

Now that you understand the process of recording a journal entry in the ledger, let’s look at other important factors.

Choose your Bookkeeping Method

The bookkeeping method includes two main categories single entry and double entry bookkeeping. The method you choose determines what information you must record.

Single entry bookkeeping is the most simple and straightforward option available. This bookkeeping system allows you to record all transactions once and operate only on cash accounting.

It works best on small businesses, self-employed individuals, freelancers, and sole proprietors with a few monthly transactions.

Double entry bookkeeping is a bit more complex for business owners. It requires you to record transactions in two accounts; a debit and a credit account.

With double entry bookkeeping, you have the option to operate on an accrual accounting or cash accounting.

Check out Cash Accounting Vs Accrual Accounting and Single Entry Bookkeeping: Complete Guide to learn more.

Create a Bookkeeping Schedule

Keeping track of your finances can be a daunting task, but it doesn’t have to be.  

Here are 5 tips for creating a bookkeeping schedule:

1. Start by organizing your finances into categories such as income, expenses, and deposits.

2. Create a timeline for each category to help you stay organized.

3. Create processes you can follow

4. Run reports to spot errors, fraud, and inconsistencies

5. Back up all your data for smooth operations

Bookkeeping Tasks scheduler

Daily Accounting Tasks

Small business owners usually put off the accounting work if they are working with clients.

Create regular accounting tasks to improve your bookkeeping skills by providing fewer distractions and simplifying your accounting process for the company.

Here’s a list of bookkeeping tasks you should do daily.

1) Record daily transactions

You should check your waiting to review transactions first thing in the morning or by the end of the day to categorize each transaction for the day. If you’re using a POS system, be sure to record journal entries with the data provided by your POS system.

2) Refresh Bank Feed

Refresh your bank feed every morning to ensure your accounting software pulls your bank transactions. Usually, your bookkeeping software automatically refreshes itself.

However, as best practice, refreshing bank feeds allows you to manually ensure your software is constantly updating. This is a great way to check your account balance daily as well.

3) Update inventory and file receipts as they come

Don’t wait last minute to update your inventory tracker or file and document receipts. If you wait until the end of the week or month to update incoming inventory or cash payments / receipts, you may forget to record it.

Forgetting to record transactions may cost you during tax time.

4) Keep track of your time

Keep track of your time so you can pay yourself for the work you do. Getting in the groove of things can easily make you lose sense of time.

However, once you’ve embedded it in your daily tasks, you’ll remember to account for every minute.

Weekly Bookkeeping Tasks

Here’s a list of weekly bookkeeping tasks.

1)Deposit checks and cash to your business bank account. Make sure to keep cash and checks in a safe place until it’s time to deposit them into your account. Also, be mindful and keep a weekly deposit schedule so you don’t forget. If you receive multiple cash transactions a day, consider scheduling two days out the week to deposit funds. This allows you to organize your deposits and not spend cash that’s laying around in the office.

2) Update your invoice tracking sheet. If you need to update your invoice tracker, be sure to set aside time to do so. If it can’t be done daily, update your tracker every week to avoid build up or forgetting to report changes.

3) Send weekly reminders to aging accounts receivables. While you’re checking your invoice tracker, run an aging report. Reach out to vendors who are past due to close out those invoices that haven’t been paid yet.

4) Pay bills, vendors, and anything else due that week. Take advantage of discounts when paying bills and vendors on time. Paying vendors on time can also build your reputation for future price negotiation. 

Monthly Accounting Tasks

The following bookkeeping tasks must be completed monthly.

1) Reconcile bank accounts against categorized transactions. Be sure to reconcile your accounts monthly. Doing so can help you spot fraud, discrepancies, or errors you or your bookkeeper made throughout the month. When you spot errors early, it’s easier to clean up than to catch it months down the line.

2) Make sure all transactions are categorized and exclude or delete duplicate accounts.

3) Run monthly reports such as the profit and loss statement and cash flow statement. Compare the monthly reports against your year to date report to spot any discrepancies.

4) Go over your budget and review your budget vs actuals. Reviewing your budget vs actuals allows you to keep tabs on your business finances. Take notes of potential risks of going over budget and adjust accordingly.

5) Pay yourself

6) Review income and expenses posted automatically with any automated rules you previously set up to avoid mis-categorizing transactions.

7) Back up your data. If you’re not using Cloud-based accounting software, backup your information every month. This will help you avoid losing your data if your computer fails to connect properly or files get corrupted. 

Quarterly Bookkeeping Tasks

1) Run reports by quarter. Review and analyze growths or losses and understand the causes so you can adjust accordingly.

2) Pay business or self-employment estimated quarterly taxes. This is your payroll tax. Also, pay sales and use taxes due.

Annual Accounting Tasks

The annual audit primarily targets regulatory compliance standards as well as reporting performance to shareholders.

Important steps:

1) Review your year end financial statements

2) Close the books for that accounting period.

3) File your business tax return

Store records securely

A good record keeping system can make small business operations easier and ensure compliance with laws. To claim expenses during tax time, you must provide proof.

This means that you are obligated to provide proof in case of an IRS audit. It is crucial that you store documents for the required timeframe. Visit the IRS website for more details.

Keep Records secure


Day to day bookkeeping deals with accounting and financial systems. You must first understand the accounting cycle to post a proper bookkeeping record. After understanding the basic principles, you’ll then be able to perform various accounting tasks. 

How you record a financial transaction depends on the accounting method you choose. If your business is using single entry bookkeeping, you must operate on the cash basis of accounting.

If your business uses double entry accounting, you can operate on either cash or accrual accounting.