# Reference — Bookkeeping for Small Businesses ## Contents - Sample chart of accounts - Debit/credit cheat table - Worked journal entries - Owner compensation by entity type - Retention rules (US / Canada) - Gotchas ## Sample chart of accounts | # | Account | Type | |---|---|---| | 1000 | Cash — Operating | Asset | | 1100 | Accounts Receivable | Asset | | 1200 | Inventory | Asset | | 1300 | Prepaid Expenses | Asset | | 1500 | Equipment | Asset | | 1510 | Accumulated Depreciation — Equipment | Contra-asset | | 2000 | Accounts Payable | Liability | | 2100 | Credit Card Payable | Liability | | 2200 | Sales Tax Payable (GST/HST/state) | Liability | | 2300 | Payroll Liabilities | Liability | | 2500 | Loan Payable | Liability | | 3000 | Owner's Capital / Common Shares | Equity | | 3100 | Owner's Draws / Dividends Declared | Equity | | 3900 | Retained Earnings | Equity | | 4000 | Sales Revenue | Revenue | | 4900 | Refunds and Discounts | Contra-revenue | | 5000 | Cost of Goods Sold | Expense | | 6000 | Rent | Expense | | 6100 | Salaries and Wages | Expense | | 6200 | Payroll Taxes (employer share) | Expense | | 6300 | Software and Subscriptions | Expense | | 6400 | Professional Fees | Expense | | 6500 | Insurance | Expense | | 6600 | Depreciation Expense | Expense | | 6700 | Interest Expense | Expense | ## Debit/credit cheat table | Account type | Increase | Decrease | Normal balance | |---|---|---|---| | Asset | Debit | Credit | Debit | | Expense | Debit | Credit | Debit | | Liability | Credit | Debit | Credit | | Equity | Credit | Debit | Credit | | Revenue | Credit | Debit | Credit | ## Worked journal entries **Credit sale with 13% HST (Ontario):** ```text Dr 1100 Accounts Receivable 1,130 Cr 4000 Sales Revenue 1,000 Cr 2200 Sales Tax Payable 130 ``` **Customer pays the invoice:** ```text Dr 1000 Cash 1,130 Cr 1100 Accounts Receivable 1,130 ``` **Remitting the sales tax:** ```text Dr 2200 Sales Tax Payable 130 Cr 1000 Cash 130 ``` **Monthly loan payment $500 ($420 principal, $80 interest):** ```text Dr 2500 Loan Payable 420 Dr 6700 Interest Expense 80 Cr 1000 Cash 500 ``` **Monthly depreciation (straight line, $12,000 equipment / 5 years):** ```text Dr 6600 Depreciation Expense 200 Cr 1510 Accumulated Depreciation 200 ``` **Prepaid annual insurance $1,200, monthly recognition:** ```text At payment: Dr 1300 Prepaid Expenses 1,200 / Cr 1000 Cash 1,200 Each month: Dr 6500 Insurance 100 / Cr 1300 Prepaid Expenses 100 ``` ## Owner compensation by entity type | Entity | Money out is recorded as | Notes | |---|---|---| | US sole prop / SMLLC | Owner's Draw (equity) | Not an expense; not payroll | | US partnership | Partner Draw (equity) per partner | Guaranteed payments are an expense | | US S-corp | Salary (payroll expense) + distributions (equity) | Reasonable salary required before distributions | | US C-corp | Salary (expense) and/or dividends (equity) | Dividends are not deductible | | Canadian sole prop | Owner's Draw (equity) | Taxed via T2125 on the T1 regardless of draws | | Canadian corporation (CCPC) | Salary (expense, T4) or dividends (equity, T5) | Choice is a planning question — see optimizing-business-taxes | ## Retention rules | Country | Rule | Source | |---|---|---| | US | Keep records ≥3 years from filing (6 if income underreported >25%) | irs.gov — Recordkeeping | | Canada | Keep records 6 years from the end of the last tax year they relate to | canada.ca — Keeping records | ## Gotchas - **Transfers between own accounts are not income or expense** — book as transfers, or revenue is overstated. - **Credit-card payments are not expenses** — the expense was recorded at purchase; the payment clears 2100. - **Sales-tax input credits (Canada):** GST/HST paid on purchases is recoverable for registrants — track in an ITC account, don't bury it in the expense. - **Negative liability or negative asset balances** in the trial balance almost always mean a mis-signed entry — investigate before closing. - **"Miscellaneous" over ~2% of expenses** means categories are missing — split it.