You don’t need accounting software to keep honest books for a small side business. In the early months, a well-built spreadsheet does the job, costs nothing and teaches you more about your numbers than any dashboard. The IRS says you may choose any recordkeeping system suited to your business, as long as it clearly shows your income and expenses. A spreadsheet can do exactly that.
What Your Records Need to Show
According to the IRS, small businesses should keep records of gross receipts (income), purchases, expenses and assets, along with the documents behind them: invoices, receipts, deposit records, account statements and so on. If you’re a sole proprietor in the US, that information eventually feeds Schedule C (Form 1040), where self-employed people report business profit or loss.
Build the Sheet in Four Tabs
1. Transactions
One row per transaction, with these columns:
- Date
- Description (who paid you or whom you paid)
- Category (for example: Sales, Platform fees, Software, Advertising, Equipment)
- Amount in (income)
- Amount out (expense)
- Payment method or account
- Receipt link (a link to the scanned receipt in your cloud drive)
Keep categories short and consistent. If you later work with a tax preparer, they can tell you how your categories map to the lines of your tax return.
2. Monthly Summary
Use SUMIFS formulas to total income and expenses by category and month. If formulas aren’t your strength, an AI assistant can help you write and explain them; baarp.com has a step-by-step guide to getting AI to write spreadsheet formulas. Test any formula on a few rows you can check by hand.
3. Assets
List bigger purchases you’ll keep for years, like a laptop or camera, with the date bought, price and date sold. The IRS asks for these details separately because assets are handled differently from everyday expenses.
4. Notes
Record anything unusual: a refund, a personal purchase made on the business card by mistake, a payment that came in late. Your future self will thank you.
Where Automation and AI Fit
Many sales platforms and payment processors let you export transactions as CSV files. Pasting a monthly export into your Transactions tab is faster than typing, and an automation tool can do it for you once you’re comfortable. AI can help you tidy descriptions or suggest a category, but you make the final call on every row, and keep bank details and customer data out of AI chats you don’t control.
How Long to Keep Everything
The IRS generally says to keep records that support your return for three years from the date you filed it, with longer periods in some situations, such as six years if you left out income worth more than 25% of the gross income shown on your return, or indefinitely if you didn’t file. Store your receipts in one dated folder per year.
This is general information, not tax advice. Rules can vary by state, and a tax professional can confirm what applies to you.
Do This Today
Create a new spreadsheet with the four tabs above, then enter every business transaction from the last 30 days into the Transactions tab. It should take under an hour, and you’ll finish with a real number for what your business earned and spent this month.
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