bookkeeping-setup

name	bookkeeping-setup
description	Sets up bookkeeping systems with chart of accounts, transaction categories, and reconciliation procedures. Use when establishing or organizing business bookkeeping.
allowed-tools	Read Write Glob
metadata	{"author":"matthewhitcham","version":"1.0"}

Bookkeeping Setup

When to Use This Skill

Use this skill when you need to:

• Set up a chart of accounts for a new business
• Organize transaction categories for clean financial tracking
• Create reconciliation procedures and schedules
• Establish bookkeeping workflows from scratch

DO NOT use this skill for tax preparation (use tax-prep-checklist), financial projections, or choosing accounting software. This is for setting up the bookkeeping structure itself.

---

Core Principle

CLEAN BOOKS START WITH A SIMPLE CHART OF ACCOUNTS AND CONSISTENT CATEGORIZATION — COMPLEXITY SHOULD BE ADDED ONLY WHEN THE BUSINESS NEEDS IT.

---

Phase 1: Business Profile

Required Inputs

Input	What to Ask	Default
Business type	"What type of business? (service, product, SaaS, consulting)"	Service-based
Entity type	"Sole prop, LLC, S-corp, C-corp?"	Single-member LLC
Revenue streams	"How do you make money?"	No default — must be provided
Accounting method	"Cash or accrual basis?"	Cash basis
Software	"What bookkeeping software do you use or plan to use?"	QuickBooks Online
Monthly transaction volume	"Approximately how many transactions per month?"	Under 100

GATE: Do not proceed without business type and revenue streams.

---

Phase 2: Chart of Accounts

Standard Chart of Accounts

## Chart of Accounts: [Business Name]

### Assets (1000-1999)
| # | Account Name | Type | Purpose |
|---|-------------|------|---------|
| 1000 | Business Checking | Bank | Primary operating account |
| 1010 | Business Savings | Bank | Reserve / tax savings |
| 1100 | Accounts Receivable | Current Asset | Outstanding client invoices |
| 1200 | Prepaid Expenses | Current Asset | Annual subscriptions paid upfront |

### Liabilities (2000-2999)
| # | Account Name | Type | Purpose |
|---|-------------|------|---------|
| 2000 | Accounts Payable | Current Liability | Bills owed to vendors |
| 2100 | Credit Card | Current Liability | Business credit card balance |
| 2200 | Sales Tax Payable | Current Liability | Collected sales tax owed |
| 2300 | Payroll Liabilities | Current Liability | Payroll taxes owed |

### Equity (3000-3999)
| # | Account Name | Type | Purpose |
|---|-------------|------|---------|
| 3000 | Owner's Equity | Equity | Owner's investment in business |
| 3100 | Owner's Draw | Equity | Money taken out by owner |
| 3200 | Retained Earnings | Equity | Accumulated profits |

### Revenue (4000-4999)
| # | Account Name | Type | Purpose |
|---|-------------|------|---------|
| 4000 | [Primary Service/Product Revenue] | Income | Main revenue stream |
| 4100 | [Secondary Revenue] | Income | Additional revenue |
| 4200 | Other Income | Income | Interest, refunds, misc |

### Cost of Goods Sold (5000-5999)
| # | Account Name | Type | Purpose |
|---|-------------|------|---------|
| 5000 | Contractor Payments | COGS | Freelancers/subcontractors |
| 5100 | Materials / Supplies | COGS | Direct project costs |
| 5200 | Platform Fees | COGS | Payment processing, marketplace fees |

### Operating Expenses (6000-6999)
| # | Account Name | Type | Purpose |
|---|-------------|------|---------|
| 6000 | Advertising & Marketing | Expense | Ad spend, marketing tools |
| 6100 | Software & Subscriptions | Expense | SaaS tools, apps |
| 6200 | Office Supplies | Expense | Supplies, equipment under $2,500 |
| 6300 | Professional Services | Expense | Accounting, legal fees |
| 6400 | Insurance | Expense | Business insurance |
| 6500 | Meals & Entertainment | Expense | Business meals (50% deductible) |
| 6600 | Travel | Expense | Business travel |
| 6700 | Education & Training | Expense | Courses, books, conferences |
| 6800 | Rent / Coworking | Expense | Workspace costs |
| 6900 | Phone & Internet | Expense | Business portion |
| 6950 | Bank Fees | Expense | Monthly fees, wire fees |

Customize account numbers and names based on the user's specific business.

---

Phase 3: Procedures

Transaction Categorization Rules

## Categorization Guide

| Transaction Type | Category | Account | Notes |
|-----------------|----------|---------|-------|
| Stripe/PayPal deposits | Revenue | 4000 | Separate by product if multiple |
| Contractor payments | COGS | 5000 | Must issue 1099 if $600+ |
| Monthly software (Slack, etc.) | Expense | 6100 | |
| Facebook/Google ads | Expense | 6000 | |
| Owner's personal transfer | Equity | 3100 | NOT an expense |
| Quarterly tax payment | Equity | 3100 | NOT an expense — draws for taxes |
| Credit card payment | Liability | 2100 | NOT an expense — reducing liability |

Reconciliation Schedule

## Reconciliation Procedures

### Weekly (15 minutes)
- [ ] Categorize all new transactions
- [ ] Review any uncategorized items
- [ ] Flag anything unusual for review

### Monthly (1 hour, by the 10th)
- [ ] Reconcile all bank accounts
- [ ] Reconcile credit cards
- [ ] Review accounts receivable — follow up on overdue invoices
- [ ] Review accounts payable — pay outstanding bills
- [ ] Run P&L report and compare to budget
- [ ] Back up data

### Quarterly (2 hours)
- [ ] Review chart of accounts — add or merge as needed
- [ ] Run P&L and Balance Sheet for the quarter
- [ ] Calculate and pay estimated taxes
- [ ] Review contractor payments for 1099 threshold

### Annually (half day, January)
- [ ] Full year reconciliation
- [ ] Prepare 1099s for contractors
- [ ] Generate annual P&L and Balance Sheet
- [ ] Package tax documents for CPA
- [ ] Review and update chart of accounts for new year

---

Phase 4: Deliverable

## Bookkeeping System Setup Complete

### Delivered
1. Chart of accounts (customized for your business)
2. Categorization guide
3. Reconciliation schedule
4. Key rules and procedures

### Next Steps
- [ ] Enter chart of accounts into [software]
- [ ] Connect bank and credit card feeds
- [ ] Set up recurring transactions for regular expenses
- [ ] Schedule weekly 15-minute bookkeeping sessions
- [ ] Set monthly reconciliation reminder for the 5th of each month

---

Example: Solo Consultant

Accounts needed: 15 total (2 bank, 1 credit card, 1 AR, 3 equity, 2 revenue, 6 expense). No COGS accounts needed — time is the product. No payroll — owner's draw only. Key rule: owner's draw is NOT an expense.

---

Anti-Patterns

• Too many accounts — a solopreneur does not need 50 expense categories. Start with 10-15 and add only when you need reporting granularity.
• Mixing personal and business — one business bank account, one business credit card. No exceptions.
• Categorizing owner's draw as an expense — owner's pay is equity, not an expense. This mistake inflates expenses and understates profit.
• Reconciling once a year — monthly reconciliation catches errors early. Annual reconciliation turns into a forensic investigation.
• Ignoring accounts receivable — if you invoice clients, track what is outstanding. Money billed is not money received.

---

Recovery

• Messy existing books: Start clean from the current month. Go back and fix previous months only if tax filing requires it — otherwise, focus forward.
• No bookkeeping software: Set up QuickBooks Online, Wave (free), or Xero. Any of these work for small businesses. Do not use spreadsheets beyond the first year.
• Mixed personal and business accounts: Open a business bank account immediately. Move all business transactions there. Separate historical transactions as best you can.
• Behind on reconciliation: Block 2-4 hours and reconcile month by month starting from the last clean month. Do not skip ahead.