Establish whether your accounting system will be a cash basis or an accrual basis. Cash-basis accounting records transactions when the money actually changes hands, whether those transactions are incoming or outgoing. Accrual basis counts these transactions when they occur, even if no money has yet changed hands. If your business incurs a lot of debt and/or if you do a lot of invoicing, then accrual basis is the best choice. Otherwise use the cash basis because it is a far simpler system.

Create an account list that will allow you to record your accounting transactions. The typical account categories would include accounts receivable, accounts payable, cash, assets, liabilities, revenue and expenses.

Establish a reliable method of inputting your accounting data each business day. The actual mechanics of the daily bookkeeping tasks involves a debit being recorded in one account and a corresponding credit being recorded in another account. A debit represents an increase in the value of assets and expenses and a decrease in income, liabilities and equity. A credit is just the opposite: it increases liabilities, equity and income and decreases assets and expenses. Remember that a debit takes away money and a credit increases money. These daily accounting transactions will be used to create reports that show the financial status of your business. These reports include the cash flow statement, Profit and Loss (P&L) report and the balance sheet.

Using your daily accounting methodology to record the amounts, dates, descriptions, debits, credits and account balances from all the revenue and expense items your business generates. For each accounting transaction record the debit and credit under the proper account and update the account balances.