1. What exactly am I supposed to keep track of every month?
What bookkeeping is
Monthly bookkeeping is the record of how money moved in your business: what came in, what went out, and what type of movement it was.
“Everyone in business must keep records. Good records will help you monitor the progress of your business, prepare your financial statements, identify the source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.”
The goal is to make sure the numbers you look at later show the correct story.
When you know what kind of money moved, you can trust your reports, your tax numbers, and your decisions.
You’re giving your future self clarity.
How the pieces fit together
There are three kinds of money movement happening every month:
Money coming in
Money going out
Money that moves, but isn’t income or an expense
Bookkeeping is just labeling each movement correctly so your reports tell the truth.
The IRS requires that your books “show your gross income, as well as your deductions and credits,” and that you keep supporting documents such as “sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks.”
Once you separate everything into the right bucket, your profit is accurate, your taxes make sense, and nothing looks bigger or smaller than it actually is.
What you’re actually tracking
Here’s what this looks like in practice:
1. Money coming in
This includes true business income: payments from clients, sales, revenue from services.
It also includes money that increases your bank account balance but is not income, such as:
Owner investments (money you put into your business)
Loans your business receives
These feel like income because cash goes up, but they’re fundamentally different.
And this is where DIY bookkeeping often goes wrong.
A common mistake:
Loan deposits regularly get miscategorized as income because people don’t know which other category to choose. They know it’s not income, but without accounting training, they don’t know the correct label.
When that happens, your income looks inflated and that impacts your taxes.
2. Money going out
This includes true business expenses like software, supplies, travel, contractors.
But it also includes money leaving the business that is not an expense, such as:
Owner draws
Employee advances
These reduce bank account balance but don’t reduce profit, so categorizing them as expenses will distort your numbers.
3. Why the categories matter
Correct categories are the difference between bookkeeping that helps you and bookkeeping that confuses you.
For taxes:
Your tax pro depends on your categories. Not all expenses are deductible, and they need the correct labels to report your income properly.
The easier you make their job, the better they can do their job.
Messy or inaccurate books make taxes harder, slower, and more expensive.
For understanding your business:
Accurate categories give you:
your true profit margin
your actual spending patterns
what’s normal in your business
what’s changing month to month
When every transaction is in the right place, your financial reports become a clear, reliable picture, not a puzzle you have to decode.
The Takeaway
The simple version is: Track everything.
The helpful version is: Track everything, and label it correctly so your reports match reality.
When the categories are right, your numbers become usable and trustworthy, the kind of numbers you can make decisions with, not worry about.
