How to Do Bookkeeping for a Small Business in 2026: The Monthly Close

Short answer: Do the monthly close on the same method as the tax return. On the cash method, record income when you receive it, reconcile every bank account to the statement, and keep the support for at least 3 years. Start the ledger at $0, and skip Intuit's dedicated bookkeeper at $300/mo after a cleanup fee until that close fails.

Bookkeeping is the monthly record of what the business earned, spent, and still holds, kept so the profit and loss and the balance sheet agree with the bank.

Toolradar data: Toolradar tracks 273 accounting tools as of October 16, 2026, and 26% of them are free, freemium, or open source. Over the prior 90 days, QuickBooks was the most compared accounting tool there, with 434 side-by-side comparisons. A ranked software list is on Toolradar's small-business bookkeeping guide. This page is the close itself, priced for one kind of business.

What the IRS requires the books to show

The IRS does not issue a chart of accounts. It requires a system that clearly shows income and expenses, and books that show gross income, deductions, and credits. For most small businesses, the business checking account is the main source of those entries. Supporting records have to show the amount, the source or the payee, the date, and proof of payment. A card statement often fails that last test, because it may not say what you bought.

Every dollar in the business account needs a category and a document. Open the account in the business name before the first invoice. Personal spending in the same account does not change the tax, and it turns the reconciliation into a search. Compare business bank accounts and free business checking on fees and who can open them. A founder opening a US account from abroad should start with the non-resident account ranking.

Publication 583 gives a computerized file no lighter rule: it has to produce legible records that reconcile to the return, and the documentation includes the chart of accounts. Keep the chart short, covering income, cost of goods if you resell, operating expenses, bank and card balances, sales tax payable, loans, and equity. Add an account when a transaction has nowhere to go.

Cash or accrual: choose it on the first return

You pick a method when you file the first return that includes the business, and the books have to use that same method. Publication 334 says you must use the same accounting method to figure taxable income and to keep your books. Changing it later generally takes IRS approval, not a setting inside the software.

On the cash method, income goes in the year you actually or constructively receive it, and expenses go in the year you pay them. A check in hand on December 30 is income for that year even if you deposit it in January, so waiting to deposit does not move the income. Money credited to your account, or made available without restriction, counts even if you ask the client to wait. You cannot deduct a prepayment in full when it covers a period stretching well past year-end, because Publication 334 limits that deduction to the year the expense applies.

Most sole proprietors with no inventory use cash because the bank statement is the book. A business that must account for inventory generally uses accrual for sales and purchases, unless it qualifies as a small business taxpayer and uses an inventory exception in Publication 334. For a corporation or partnership, Revenue Procedure 2025-32 sets the 2026 gross receipts test at average annual gross receipts of $32 million or less over the prior three tax years. Above that line, or once you elect to keep inventory, the close records revenue when you earn it and bills when you incur them.

Write the choice down, because a cash-method firm that starts recording unpaid invoices as revenue, without changing the tax method, will hand the accountant two profits.

Run the monthly close in this order

Do the close on a set date, in five passes, because skipping one is how a free ledger becomes a cleanup bill.

1. Bring in every account: import or enter business checking, the business card, and any processor payout account. A payout is not revenue, since the customer charge is the sale and the deposit is a transfer net of fees. Coding the deposit as income double-counts the sale and hides the fee.

2. Categorize what is left: income, an operating expense, an owner draw, a loan payment, a sales-tax remittance, or a transfer between your own accounts. Loan principal is not an expense, only the interest is, and a transfer between your checking account and your card is neither income nor an expense. Treating principal or that transfer as a cost misstates the profit.

3. Match documents: each deposit should tie to an invoice or a sales receipt, and each vendor payment should tie to a bill or a receipt that names the payee and what you bought.

4. Reconcile: the adjusted bank balance and the adjusted book balance have to match. A difference is a fee you never entered or a line you entered twice, so do not close on a remainder.

5. Save the reports and lock the month: export the profit and loss and the balance sheet, and lock the period if the software allows it. Zoho Books lists transaction period locking on Standard, so a later edit cannot quietly rewrite a month the accountant already took. The package you send is those two reports, the reconciliation for each account, and a note on anything still unmatched.

Record income, bills, draws, and contractor pay

Sales tax you collected is a liability until you remit it, not income, and leaving it in a revenue account overstates profit and leaves nothing to pay the state. Zoho Books puts sales-tax tracking on Standard, not on Free, and Xero lists sales tax on Early.

On a pure cash method with no open payables, coding the bank line to the expense is enough. Once vendors are unpaid at month-end and you want an accounts-payable balance, enter the bill, then the payment. When that list outgrows the ledger, the accounts payable software ranking covers tools that sync back.

An owner draw is not an expense, because moving profit to a personal account does not reduce the profit the return taxes, so code it to equity. Which tax applies depends on the entity, covered in how to pay yourself from an LLC. An S corporation salary is payroll, not a draw, and it has to come before distributions.

For payments made in 2026, the IRS says you file Form 1099-NEC when you pay a person at least $2,000 for services in the course of the business. Payments made before 2026 used a $600 threshold, so the old line is the wrong test for this year's payments. You also file if you withheld backup tax, at any amount. Payments to a corporation are generally outside the form, with exceptions that include legal services. The form and the recipient copy are due January 31, so track the running total in the close rather than reconstructing it from bank memos in January, which is how names and identification numbers go missing.

Keep employment tax records at least 4 years after the tax becomes due or is paid, whichever is later. Payroll is usually an add-on: Xero's US payroll, powered by Gusto, is $36/mo plus $6 per employee or contractor on Early, Growing, and Established.

Reconcile each account before you close

Publication 583's test still applies when the lines arrived through a feed. Compare deposits on the statement with deposits in the books, compare each cleared payment by amount and check number, and mark what cleared. What did not clear is outstanding, and you then enter what the statement shows and the books do not: fees, interest, a returned payment. The adjusted statement balance has to equal the adjusted book balance. If it does not, the error is in this month or the prior one, so do not book the difference to a made-up expense.

A feed delivers the lines, and you still confirm each one is real, coded once, and matched to a document. QuickBooks Online puts "reconciles your books" on Plus, which is a different feature from importing transactions. Simple Start includes automated bookkeeping that learns categories, and a learned category is not an agreement with the bank.

A deposit with no invoice is income you never billed or a transfer coded as a sale, and a payment with no bill is a personal expense or a vendor you cannot support. Clear the list, or write down why a line stays open.

How much does small business bookkeeping cost in 2026?

The prices below are for one US service business: one owner, one outside accountant who needs to work in the file, a bank account and a card to import, no inventory, the cash method, and about 30 invoices a month (360 a year). Prices were checked on 17 October 2026, and yearly figures are our multiplication, except Wave Pro's yearly price, which the page prints.

Route	Who closes the month	What you pay for this business
Zoho Books Free	You, entering bank lines	$0 while revenue stays at or under $50,000 and invoices stay within 1,000 a year
Zoho Books Standard, billed annually	You, with bank feeds	$15/mo, $180 for the year, 3 users
Wave Pro, billed annually	You, with bank import	$190 for the year
QuickBooks Online Simple Start	You	$38/mo, $456 for a full-price year, 1 user and 2 accountants
Xero Growing	You, past Early's invoice cap	$59/mo, $708 for a full-price year
Wave Advisors	A Wave bookkeeper, Pro included	From $149/mo, or from $199/mo
Intuit Expert Full Service Bookkeeping	An Intuit bookkeeper	$300/mo after a cleanup fee, QuickBooks plan extra, $3,600 for the service year

The free rows fail when the bank has to import itself. Wave Starter includes unlimited invoices and records, and card payments at 2.9% + $0.60 (3.4% + $0.60 on American Express). Auto-import and admin, editor, or viewer logins are Pro, so an accountant who categorizes needs Pro, while a Block Advisors tax pro can be invited on Starter.

Zoho Books Free includes the accountant seat, manual bank reconciliation, and 1099 preparation. Bank feeds and e-filing Form 1099-NEC start on Standard. This scenario's 360 invoices sit under Free's 1,000-invoice cap, so the $50,000 revenue cap and the missing feed are what end it.

Wave Pro is $19/mo if you skip the annual bill, and new monthly subscribers are offered $9.50 for the first 3 months. On Pro the fixed card fee drops for the first 10 payments in a month, then $0.60 returns, and the subscription is per business, while Zoho Standard is $20/mo on a monthly bill.

QuickBooks Online Free allows 2 invoices a month, 1 bank, and no accountant, so Simple Start is the first plan that fits. It is shown at $19/mo for 3 months, and a year that receives the discount is $399, the figure to use instead of the intro month, with higher tiers on QuickBooks Online pricing. Xero Early is $27/mo after $5.40 for 3 months, capped at 20 invoices and 5 bills, with auto-reconcile at $5/mo extra, so about 30 invoices a month forces Growing, shown at $11.80 for 3 months, then the regular rate. A first year with that 80% discount is $566.40, with plan detail on Xero pricing and QuickBooks versus Xero.

Hiring the month does not remove the filing work. Wave Advisors includes Pro and monthly statements, and the pricing page notes that mobile receipts are not included. Twelve months at the two starting rates in the table is $1,788 or $2,388. Intuit's service is sold to QuickBooks Online subscribers, and adding Simple Start's full-price year to the service year is $4,056 before the cleanup fee, which that page does not publish, so treat the stack as a floor. The bookkeeper categorizes, reconciles, can close the books, and can send a trial balance plus PDF profit and loss and balance sheet. The page says the service does not send invoices, pay bills, manage inventory or payables, give tax advice, file income or sales tax, create 1099s, or run payroll. Past months are described as up to 20 months of cleanup, typically within 30 days after the documents arrive.

With inventory, Zoho Professional is $50/mo, or $40/mo billed annually, and QuickBooks Plus is $140/mo, shown at $70/mo for 3 months, with 5 users, project profitability, and up to 40 classes. Xero lists Inventory Plus as optional on Growing and Established and publishes no price for that add-on on the plan page.

If the only question is the cheapest ledger for one owner plus an accountant, use the cheapest accounting software comparison and the free accounting software ranking. The Wave review and the Zoho Books review cover the two low bills, other services are on online bookkeeping services, and automation-first products are on AI bookkeeping tools.

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When to stop doing the close yourself

Stay in the software while you finish the reconciliation every month, you have no inventory, and you are not running payroll. The Zoho and Wave annual bills in the table are the right spend in that case. Move the month to a person when the unmatched list is still open the next month. A one-time cleanup, then a return to the habit, costs less than a standing service used to hide a process you could run.

The hire is the wrong product if you needed bill pay, 1099 filing, or payroll, and Intuit's full-service page excludes all three. Keep a contractor worksheet beside the reconciliations even if someone else matches the bank.

Publication 334 lets two separate businesses use two methods only if each has its own books, and Wave bills Pro per business. QuickBooks Advanced, at $340/mo shown at $170/mo for 3 months, with 25 users and 3 accountant seats, is built for that complexity, and it is more ledger than this scenario needs.

How long to keep the records

Keep support for an income or deduction item until the assessment period for that return ends. Publication 583's usual period is 3 years after filing, and a return filed early counts as filed on the due date, if you owe additional tax and the longer cases do not apply. It is 6 years if you omit income that is more than 25% of the gross income on the return. There is no limit if you never file, or if the return is fraudulent. A refund claim is the later of 3 years or 2 years after the tax was paid, and a worthless-security or bad-debt claim is 7 years.

Asset records outlive the purchase year, so keep the invoice, improvements, depreciation, and the sale until the period ends for the year you dispose of the property. Employment tax records stay at least 4 years after the tax is due or paid, whichever is later, and you should keep the filed returns with them. A cloud login is not a records policy: export the reports when you lock the month, because you still have to produce the file if you leave the vendor.

FAQ

How do you do bookkeeping for a small business in 2026?

Run a monthly close on the same method as the tax return. Import every business account, categorize each line, match deposits to invoices and payments to bills, reconcile to the statement, and save the profit and loss and the balance sheet. The IRS accepts software if the electronic record can support the return.

How much does bookkeeping software cost versus hiring a bookkeeper?

For the one-owner service business on this page, a do-it-yourself file with bank import is Zoho Books Standard or Wave Pro on an annual bill, QuickBooks Online Simple Start, or Xero Growing, at the yearly figures in the table. Intuit's bookkeeper is $300/mo after a cleanup fee, and the QuickBooks subscription is separate. Wave's bookkeeping add-on starts at $149/mo and is also listed from $199/mo.

Is there free bookkeeping software with a bank feed and an accountant login?

No free plan in this scenario gives you both. Wave Starter and Zoho Books Free are $0, but Wave's auto-import and ordinary extra logins are Pro, while Zoho includes the accountant on Free and starts bank feeds on Standard. QuickBooks Online Free connects 1 bank, caps invoices at 2 a month, and has no accountant login.

Should a small business use cash or accrual accounting in 2026?

Use cash if you are a sole proprietor without inventory, and record income when you receive it. Use accrual if you keep inventory and do not qualify for the small-business inventory exception, or if unpaid invoices should show as revenue. The books and the return share one method, chosen on the first business return.

How long should a small business keep its bookkeeping records?

Keep ordinary support for 3 years after the return is filed, 6 years if omitted income exceeds 25% of reported gross income, and 7 years for a bad-debt or worthless-security claim. Keep asset records through the year you sell the asset, and keep employment tax records at least 4 years after the tax is due or paid, whichever is later.

When should you hire a bookkeeper instead of doing it yourself?

Hire when the reconciliation is still open the following month, or when inventory, payroll, or a second entity makes the month longer than the software habit. One month of Intuit's full-service rate costs more than a year of Zoho Standard or Wave Pro at the prices above, and that service still does not file 1099s or run payroll.

Do you file a 1099-NEC for every contractor in 2026?

Not every payee gets a form: file Form 1099-NEC for each person you paid at least $2,000 for services in the business during 2026, and for anyone from whom you withheld backup tax at any amount. The form and the recipient copy are due January 31. Payments to corporations are generally excluded, with exceptions that include attorney fees.

How we checked this

We read the IRS pages and the vendor pricing pages linked below on 17 October 2026. The yearly totals, the $399 first year on Simple Start, the $566.40 first year on Xero Growing, and the $4,056 stack of Simple Start plus Expert Full Service are our arithmetic on those rates. The Toolradar figures are from Toolradar's accounting ranking, which states that it tracks 273 accounting tools as of October 16, 2026. Finpresso data: the audience file refreshed October 18, 2026 lists 29,000+ active subscribers. Louis Corneloup, founder of Toolradar and Dupple, wrote this page. It is a procedure and a price comparison, not a product test.

This page is general information, not personalized financial advice. Confirm the accounting method, any 1099 filing, and the current price and eligibility with your CPA and with the provider before you subscribe or file.

Cite this: Finpresso, "How to Do Bookkeeping for a Small Business in 2026", October 2026.

Sources

• IRS, What kind of records should I keep (page last reviewed 3 August 2026)
• IRS, Publication 583, Starting a Business and Keeping Records
• IRS, Publication 334 (2025), Tax Guide for Small Business
• IRS, Revenue Procedure 2025-32
• IRS, Am I required to file a Form 1099 or other information return?
• IRS, Instructions for Forms 1099-MISC and 1099-NEC (2026)
• QuickBooks Online pricing
• Intuit Expert Full Service Bookkeeping
• Wave pricing
• Xero US pricing plans
• Zoho Books US pricing

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