Choose an accounting system you want to use for your home business. One is the cash-based system and the other is the accrual-based. A cash-based bookkeeping system is where you only keep a record of your income and expenses when get paid or when you spend. For example, if someone buys products from you on an IOU, you do not enter the transaction into your bookkeeping system until after you get paid.

The accrual-based bookkeeping system, on the other hand, is where you record all your income and expenses as they occur, whether you receive actual payment or not. It's not as simple as the cash-based system, but it lets you know exactly where your finances are. Say for example, one of your customers buys your product on credit. You simply have to enter this transaction into your bookkeeping system. Even if you have not received the cash yet, you can still consider it as a sale.

Keep a record of everything.

Using a small notebook, simply record whatever sales or expenditures you incur, along with the corresponding date and description. If you sold a $20 lampshade, include it in the record. If you spent $12 for office supplies, write that down as well.

Keep transaction records and documents.

Make sure you know where all your money goes, whether it's coming in or going out. Keep folders to chronologically file all your documents, purchase orders, receipts, invoices, bank statements, etc. These files will come in handy later in case of an audit.

If you need more help, get an accounting software program.

This contains everything you need to electronically set up your home business' bookkeeping system. Accounting software is easy to install and use, helping you calculate your finances accurately.