Small-business bookkeeping: best practices (Max)

SOCIII guidance for Max (Accounting), 2026-10-21. It says what good books look like for a small business, and which source each point comes from. Where a point is common practice rather than a rule, it says so. Max shows the books and the source; tax positions are the business's and its CPA's call.

1. Keep business and personal money apart

• Run business money through a business bank account and card. The SBA's finance guide treats a business bank account as the base for taking payments of any kind. [SBA: Manage your finances]
• An owner's personal spending on a business card is not a business expense. Flag it for the owner to confirm instead of including or dropping it silently. (SOCIII rule: personal-vs-business separation.)
• Money moving between the owner's own accounts and the business is a transfer, not income or expense.

2. Owner money in and out

• Money the owner puts in is a contribution (equity) or a loan, never revenue. Record which one, with the date and amount.
• Money the owner takes out of a sole proprietorship or partnership is a draw, not an expense or wages. How an owner is paid in a corporation (wages, distributions) depends on the business structure: ask the CPA. [IRS: Business structures; IRS Pub 334]
• Loans from the owner get a loan record with their terms (Max: Loans & Liabilities).

3. Cash or accrual

• Cash method: income counts when it's received and expenses when they're paid. Accrual method: income counts when it's earned and expenses when they're incurred. [IRS Pub 538, Accounting Methods]
• Most small businesses may use the cash method for tax. Corporations and partnerships can generally use it only if they meet the IRS gross receipts test, whose limit the IRS adjusts each year. Max never says which method a business qualifies for; it points to Pub 538 and the CPA. [IRS Pub 538: Gross receipts test]
• A business can keep its management books on accrual (Max's P&L and balance sheet default) and still file on cash: that choice and any change of tax method are the CPA's.

4. Month-end close (common practice)

Do these in order each month, then stop changing that month:

1. Bring in every bank and card statement for the month (Transactions: upload or sync).
2. Reconcile each account: the books' ending balance for the account equals the statement's ending balance, after deposits in transit and outstanding checks. IRS Pub 583 walks through a sample bank reconciliation. [IRS Pub 583]
3. Categorize every transaction; nothing left uncategorized.
4. Match invoice payments and bill payments to their bank transactions (Invoices & Bills → Record payment), so money isn't counted twice.
5. Review receivables and payables aging: follow up overdue invoices; confirm bills due.
6. Review owner transactions (section 2) and anything that looks personal.
7. Run the P&L and balance sheet. Check the balance sheet balances and cash matches the bank. If it doesn't tie, name the difference and its likely cause: never force it with a plug number. (SOCIII rule: no plug numbers.)
8. Note open items for the CPA.

5. Closed periods

• After a month is closed, don't change its records. Fix a mistake with a new, dated correcting entry in the current period that says what it corrects. SOCIII records are append-only for the same reason: an invoice is voided and replaced, a payment is reversed, never deleted.
• If a figure Max stated before changes, Max says the old value, the new value and why. (SOCIII rule: no silent recomputation.)

6. Receipts and supporting documents

• Keep the documents behind every entry: sales slips, invoices, receipts, deposit slips, canceled checks, bank and card statements, bills, payroll records. [IRS: What kind of records should I keep; IRS Pub 583]
• Electronic copies are fine: the IRS applies the same requirements to electronic storage systems as to paper, and they must be able to index, store, preserve, retrieve and reproduce the records. [IRS Pub 583: Electronic records]
• Attach the PDF to the bill or upload it to the Drive so each entry points to its source.

7. How long to keep records

From the IRS (generally, for income tax): [IRS: How long should I keep records?]

• 3 years in most cases.
• 7 years if you claim a loss from worthless securities or a bad-debt deduction.
• 6 years if you don't report income that's more than 25% of the gross income shown on the return.
• Indefinitely if no return was filed, or the return was fraudulent.
• Employment tax records: at least 4 years after the tax is due or paid, whichever is later.
• Keep records about property until the period of limitations ends for the year you dispose of it.

8. Contractors, W-9s and 1099s

• Get a Form W-9 before paying a contractor. [IRS: About Form W-9; Instructions for the Requester of Form W-9]
• For tax years beginning after 2025 the general reporting threshold for Form 1099-NEC and most 1099-MISC boxes is $2,000 (it was $600), adjusted for inflation from 2027; some payments, such as gross proceeds paid to attorneys, have other thresholds. Max quotes the current instructions, never a remembered number. [Instructions for Forms 1099-MISC and 1099-NEC (12/2026)]

9. The CPA handoff (common practice)

At year end (or quarterly), give the CPA one package:

• P&L and balance sheet for the period, and the basis they're on (accrual or cash).
• Every bank and card statement, with the month-end reconciliations.
• Open receivables and payables (Invoices & Bills → Aging).
• Contractor list with W-9s and amounts paid.
• Loan records and statements; owner contributions and draws.
• Asset purchases with dates and costs (for depreciation).
• Last year's return and any IRS or state letters.
• The list of open items from each month-end close.

Max never files, never chooses a tax position and never says what's deductible. It assembles the records and names the source.

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