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Ultra-Sharp Agent Skills — a research-first skill-authoring system + 72 production-ready skills for AI agents.

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# name: bookkeeping-for-small-businesses description: Sets up and maintains double-entry books for a small business — chart of accounts, journal entries, debits/credits, monthly close, and reconciliation. Use when the user asks to set up bookkeeping or a chart of accounts, record or categorize transactions, reconcile bank or credit-card statements, do a monthly close, choose cash vs accrual accounting, or record owner draws, payroll, or sales tax collected. Do not use for producing formal financial statements (preparing-financial-statements) or for filing tax returns (filing-us-business-taxes, filing-canadian-business-taxes).

# Bookkeeping for Small Businesses

# When to use / when NOT to use

  • Use for: setting up books, recording/categorizing transactions, reconciliations, monthly close, cash-vs-accrual decisions, owner-compensation entries, sales-tax bookkeeping (US and Canada).
  • Do NOT use for: building the income statement / balance sheet / cash flow (→ preparing-financial-statements) or preparing tax filings (→ the filing skills).

# Important limits

  • Educational help, not professional accounting or tax advice — complex or high-stakes cases go to a CPA.
  • Figures and deadlines are tax-year-stamped and MUST be verified against irs.gov / canada.ca before use.
  • Never assist with evasion, backdating, or falsified records; refuse and explain.

# Core rules

  1. Chart of accounts: 5 root types, numbered ranges. 1000s assets, 2000s liabilities, 3000s equity, 4000s revenue, 5000s+ expenses. Start small (~25 accounts); add only when a category is reused.
  2. Debit/credit rules, stated plainly. Debits increase assets and expenses; credits increase liabilities, equity, and revenue. Every entry balances: total debits = total credits, no exceptions.
    • ✅ Dr Equipment 2,000 / Cr Cash 2,000
    • ❌ A one-sided "expense" line with no offsetting account
  3. Cash vs accrual: accrual becomes the default the moment inventory or receivables exist. Pure cash basis only for simple service businesses; note that tax filings may still use a cash basis where allowed (US small businesses; Canada mainly farmers/fishers) — keep books on one basis and note the other.
  4. Separate business and personal money absolutely. Dedicated bank account + card from day one. Owner money in = capital contribution (equity); owner money out = draw (equity) for sole props/partnerships, salary or dividend for corporations — never "misc expense".
    • ✅ Dr Owner's Draw / Cr Cash for a sole prop owner withdrawal
    • ❌ Booking the owner's groceries to Office Expense
  5. Sales tax collected is a LIABILITY, not revenue. GST/HST/state sales tax goes to a Sales Tax Payable account and is cleared when remitted.
    • ✅ Sale $100 + $13 HST → Dr Cash 113 / Cr Revenue 100 / Cr HST Payable 13
    • ❌ Cr Revenue 113
  6. Reconcile monthly, to the penny. Bank and credit-card statements against the books; investigate every unmatched item — do not plug differences to a suspense account and move on.
  7. Keep the paper. Receipt/invoice for every entry. Retention: IRS at least 3 years (6 for large underreporting); CRA 6 years from the end of the tax year. Digital copies acceptable in both countries.

# Monthly close workflow

  1. Import/enter all transactions; sweep the uncategorized list to zero.
  2. Reconcile every bank and credit-card account to its statement.
  3. Review AR aging (chase >30 days) and AP aging (schedule payments).
  4. Post recurring entries: depreciation, loan interest split (principal → liability, interest → expense), prepaid amortization.
  5. Verify sales-tax payable matches the filing-period report.
  6. Validate: run a trial balance — total debits must equal total credits, and cash per books must equal reconciled cash. If either fails, fix before closing the month.

# Edge cases & failure modes

  • Mixed personal/business card in the past → reclassify personal items to draws/contributions; do not delete transactions.
  • Missing receipts → record the transaction anyway with a note; flag for the owner to source documentation.
  • Loan payments → never expense the full payment; split principal/interest per the amortization schedule.
  • Refunds → reverse against the original revenue/expense account, not a new one.

# References

Sample chart of accounts, worked journal entries, and gotchas: see references/reference.md.