For a self-employed therapist, bookkeeping is key to tracking profits, preparing for the future, and weathering economic ups and downs. Done well, it can even help to reduce tax bills.

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Consider this guide your crash course on bookkeeping for therapists. Even if bookkeeping seems overwhelming now, once you’ve got the hang of it, you’ll soon find running your own practice less stressful, more profitable, and even—possibly—more fun.

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What is bookkeeping for therapy practices?

Bookkeeping is the process of recording your transactions in your general ledger. 

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While most bookkeeping systems today are electronic, the general ledger was once literally a very large book where business owners (or their bookkeepers) would make entries every time money was earned (income) or spent (expense).

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Each entry in the general ledger includes:

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• The date of the transaction
• The amount of the transaction
• Whether money was spent or earned
• The transaction account or sub-ledger (how the transaction is categorized)

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Looking at your general ledger, you see a complete history, in chronological order, of the money your practice has earned or spent.

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For therapy practices, that means you have records of every time clients have paid you. You also have records of every time you spent money on business expenses like rent, insurance, utilities, supplies, continuing education, or work travel.

What’s the difference between bookkeeping and accounting for therapists?

Bookkeeping and accounting are closely related, but they’re two separate practices.

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While bookkeeping is the practice of recording financial data, accounting is the practice of analyzing that data, drawing conclusions from it, and making business decisions. Accounting also includes tax preparation—gathering information from the books and using it to file taxes.

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Generating financial statements technically falls under the umbrella of accounting. Financial statements (also called financial reports) compile data from your books to present important information like how much profit your practice is earning, and how much cash you have on hand. But most bookkeeping systems today, including Heard, generate monthly financial statements without the help of an accountant.

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For therapy practices that stay on top of bookkeeping, the relationship between bookkeeping typically looks like this:

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1. Over the course of the financial year, the practice makes bookkeeping entries (or their bookkeeper does it for them).
2. On a monthly or quarterly basis, the practice generates financial statements that measure their performance.
3. At the end of the year, the practice generates year-end financial statements that summarize the business activity for the entire year.
4. The practice brings its year-end financial statements, plus any necessary supporting documents, to an accountant who uses them to complete their tax filing.

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Therapy practices may also go to accountants for help restructuring their businesses, creating financial projections, and planning for growth.

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For more info, check out What's the Difference Between an Accountant and Bookkeeper?

Is bookkeeping required for therapists?

There is no law requiring you to do bookkeeping for your therapy practice. But bookkeeping is an integral part of most practice’s day-to-day operations, and the benefits of bookkeeping are so great that whether or not you keep up with bookkeeping could make or break your business.

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Even if you’re just starting out as a solo therapist, setting up some form of rudimentary bookkeeping using a simple spreadsheet will increase your odds of success and make running your business less stressful and confusing than it would be otherwise.

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According to the 2025 Financial State of Private Practice Report, 50% of therapists reported doing their own bookkeeping with 41% of therapists using Excel or Google Sheets.

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Here are some major benefits to doing bookkeeping.

Cash flow management

Making sure you have enough cash on hand to cover your business expenses isn’t always straightforward, especially as your income (and your client list) grows. 

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Bookkeeping lets you see where your money is being spent and how much you have on hand, so you’re less likely to rely on credit to cover expenses and go into debt.

Business insights via financial reports

Financial reports based on information in your general ledger are the Swiss Army knives of business admin. They give you the insights you need to:

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• Cut costs
• Plan for growth
• Increase profits
• Reduce debt
• Expand your business
• Save for the future
• Reinvest in your business

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Just about any decision you make that will impact your practice benefits from being informed by up-to-date financial reports. And the only way to get them is with good bookkeeping. 

Tax preparation

Your end-of-year financial reports give you—or your accountant—all the information you need to file taxes. Without them, tax season means playing catch-up, going back through your records to compile the information you need. That means a lot of wasted time and effort, plus an increased chance of making errors.

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Plus, when all your expenses in the general ledger are correctly categorized, you can see how much you spent on different tax-deductible expenses. 

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Here’s Schedule C of Form 1040, where businesses report their deductible expenses. 

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Without detailed records, you cannot accurately complete this section of Schedule C. That means potentially losing out on thousands of dollars in reduced tax liability.

Selling your practice or bringing on investors

If you ever decide to sell your practice, or you’d like to get more capital by bringing on investors, you need a complete set of financial records for past years. The farther back the records go, the better.

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That’s because buyers and investors want to see that your practice is profitable. They may also want to measure its growth trajectory, so they can make their own plans for the future. They need the type of information that only accurate bookkeeping and financial reports can provide.

Long-term planning and growth

What would you like your practice to look like in five years? In ten? With data from your books, you can create financial projections to model what your business will look like in the future.

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That helps you plan for how you may want to expand your business—by bringing on employees or partners, or even just growing your client list. But it also helps you weather potential storms. 

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Modeling best-case and worst-case scenarios can help you figure out the steps you need to take now so you can make sure you’re prepared for whatever comes later. That could include setting aside savings, diversifying your income streams, or limiting operating expenses. And it’s only possible when you have the kind of precise and accurate financial data bookkeeping provides.

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Bookkeeping systems for therapists

Now that we know what bookkeeping is and what it can do for your practice—what does bookkeeping look like on a day-to-day basis?

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Your bookkeeping system consists of the set of tools and/or professional support you use to do your bookkeeping. Which system is best for you depends on: 

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• The size of your practice and its annual revenue
• Your knowledge and comfort level using different types of financial software
• How much time you are willing or able to devote to bookkeeping each week

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Here are the different DIY and professional solutions to consider.

DIY solution: Spreadsheets

Revenue: $0 – $20,000 

Learning curve: Medium

Time commitment: High

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If your total sales for the year amount to $20,000 or less, your practice’s finances are simple enough to manage with a spreadsheet in Excel or Google Sheets.

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A spreadsheet gives you everything you need to enter transactions, organize them by date, and categorize each one. 

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It likely won’t be able to handle double-entry bookkeeping (covered below), and making each entry by hand takes more time and effort than automatically importing transactions (which is usually an option with every other form of bookkeeping). You will also need to crunch the numbers yourself if you plan to generate financial reports.

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But when your practice is brand new and your transactions are few, using a spreadsheet works as a stop-gap solution until you move on to something more comprehensive.

DIY solution: Software

Revenue: $20,000 – $50,000

Learning curve: High

Time commitment: Medium

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Once your practice is earning at least $20,000 per year, making bookkeeping entries by hand becomes laborious. You’re now at the point where you can save significant time by using bookkeeping or accounting software.

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Accounting software’s biggest benefit is that, in most cases, it can automatically import transactions from your bank account. Every time you earn income or spend money on business expenses, the transaction appears in your general ledger. Then it’s up to you to categorize it.

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Most software uses double-entry bookkeeping, and will generate financial statements for you based on the data in your books.

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However, expect a steep learning curve. If you’re new to accounting software, and especially if you’re new to bookkeeping in general, plan to spend some time following tutorials, taking notes, and practising with the interface before you can use the software confidently.

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A caveat: The information in your general ledger and financial statements is only as accurate as the data you enter. If you miscategorize a transaction, or if you forget to manually enter a transaction that occurred outside your banking account, software won’t correct the mistake for you. You have to rely on yourself to get it right.

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For a deeper dive, check out How to Choose Accounting Software for Your Therapy Practice.

Professional solution: Bookkeeper

Revenue: $50,000+

Learning curve: Low

Time commitment: Medium

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If your practice is earning $50,000 or more annually, there’s a good chance day-to-day bookkeeping with accounting software is too much work to justify the time you spend on it. And because of higher revenue, you can now justify the expense of hiring a bookkeeper.

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Professional bookkeepers work either at a firm or on their own as freelancers. Most use accounting software like QuickBooks to do their bookkeeping. Using QuickBooks, a bookkeeper will automatically import your transactions and categorize them for you. 

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This solves the problem of errors that may crop up if you categorize transactions yourself. You now have a professional working for you who can guarantee your books are accurate.

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Hiring a bookkeeper is not a complete hands-off solution. They may still prompt you to categorize certain transactions they’re not sure how to categorize themselves. That’s especially the case if your bookkeeper does not have experience working with therapy practices and isn’t totally familiar with your workflow.

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To collaborate with your bookkeeper, you will likely be given access to your books via whichever accounting software they use. That means learning the fundamentals of the software, and keeping an eye peeled for any alerts that pop up.

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Some bookkeepers work for firms that also employ accountants, so your bookkeeper may be able to pass your books on to a colleague for tax filing each year. Otherwise, it’s up to you to hire your own accountant, and bring them the financial statements your bookkeeper prepares in order to file taxes.

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For a deeper dive, check out our guide to hiring a bookkeeper for therapists.

Professional solution: Heard

Revenue: $50,000+

Learning curve: Low

Time commitment: Low

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In some ways, using Heard is similar to hiring a professional bookkeeper. 

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Your transactions are automatically imported, and members of your bookkeeping team categorize them for you. You also have 24/7 access to your general ledger, financial statements, and other information.

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Where Heard differs is in our focus on therapy practices. We exclusively serve self-employed therapists, and every aspect of the Heard experience is geared towards that. Your bookkeeping team is familiar with all the different forms of revenue and types of expenses therapists record on the books, which minimizes the amount of transactions you need to categorize yourself.

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Most transactions are categorized instantaneously, and financial reports are generated up to the minute. You can access your Heard dashboard any time and get access to all of your business’s important financial information, including visual metrics measuring performance.

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Finally, Heard handles tax filing for you. There’s no need to hire a CPA. At the end of every calendar year, your Heard team passes your financial statements on to professional tax preparers who file your taxes for you. And since they specialize in serving therapy practices, they help you to take advantage of all the tax deductions available to therapists.

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For a closer look, take a tour of Heard.

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Double-entry bookkeeping for therapists

Double-entry is the standard method of bookkeeping across all professions. If you use accounting software, hire a bookkeeper, or work with Heard to tackle your books, you will come face-to-face with double entry. 

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In double-entry bookkeeping, every transaction appears on the books twice: First, as money entering or leaving an account, and again as money entering or leaving a different account.

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The double-entry method has been around for about four hundred years—and for a good reason. When every transaction is entered twice, you drastically reduce the likelihood of errors. 

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It may seem arcane at first, but once you understand a few basic concepts, you’ll be on your way to using double-entry like a pro.

Five types of accounts

Every account used in double-entry falls into one of five categories:

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• Assets: Money you have
• Liabilities: Money you owe
• Equities: Investment in your business (owner’s capital)
• Income: Money you earn
• Expenses: Money you spend

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Each type of account behaves differently depending on whether it’s being debited or credited.

Credits and debits

For a moment, throw away any ideas you have about the meaning of “credit” and “debit.” When it comes to double-entry, these have nothing to do with plastic cards.

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Every transaction on the books is entered once as a debit or credit and again as a debit or credit. As long as the debit and the credit for a transaction are equal, you’re good. If they’re different, you have a bookkeeping error on your hands.

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Debits and credits act differently depending on which category of account they’re debiting or crediting.

A double-entry example

If everything you’ve read about double-entry bookkeeping has your brain tied in knots—relax. The best way to get a sense of how the system works is through hands-on experience.

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Example: You buy a new couch for your office. It costs $1,200. With double-entry, the transaction looks like this:

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This entry simply shows that you’ve taken $1,200 in cash and turned it into $1,200 worth of furniture for your office.

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Can double-entry bookkeeping get more complicated than this? Yes. Do you need to know all the ins and outs of double-entry to start doing your bookkeeping? No. As long as you understand these fundamentals, you can start building on them—whether you’re doing your own bookkeeping with accounting software or working with a professional bookkeeper.

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Cash basis vs. accrual accounting for therapists

There are two methods for managing your books: Cash basis and accrual.

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The big difference between the two is the point at which you record transactions on the books.

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Cash basis accounting is based on the real exchange of money. Nothing appears on the books until money has either been earned or spent.

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Example: Your internet provider sends you a bill for $80. One week later you pay the bill. The $80 is then entered as an $80 expense on the books.

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Accrual accounting is based on when you charge someone money or when you incur an expense. It doesn’t matter whether the money has actually entered or left your bank account.

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Example: Your internet provider sends you a bill for $80. As soon as you receive the bill, you enter it as a liability on the books. One week later, you pay the bill. Your cash account decreases by $80 (the amount paid), and your liabilities account increases by $80. The $80 in your liabilities account was a negative amount. Once you paid the bill, the $80 was wiped out by a positive amount—the $80 from cash.

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Which method you use depends on what is most straightforward for your practice and most accurately reflects the state of your finances. If you hire a professional bookkeeper, they may determine for you whether cash or accrual accounting is the best choice.

Accounts Receivable and Accounts Payable

If you plan to use the accrual method, you should familiarize yourself with Accounts Receivable (AR) and Accounts Payable (AP).

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In the example above, the $80 you owe your internet provider is recorded as AP—money you need to pay. Once you pay it off, the amount is removed.

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If you invoice clients using the accrual method, AR is a regular part of daily bookkeeping. When you invoice a client $200, that amount is recorded in AR as an asset—money that will be paid to you. Once your client pays, you remove the $200 from AR and add $200 to your revenue account.

The general ledger for therapists 

Your general ledger includes all your bookkeeping transactions. Each entry in the general ledger records:

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• The date of the transaction
• The amount of the transaction
• The transaction account
• The transaction category
• Which accounts were debited or credited

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Your general ledger will look different depending on which bookkeeping method you use (cash basis or accrual), and the bookkeeping solution you use.

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Here’s an example general for a therapy practice. For the sake of simplicity, it uses single-entry bookkeeping. Single-entry is similar to the way transactions are recorded on your bank statement. Amounts in brackets are negative (e.g. expenses).

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To see the total amount you earned as profit (revenue minus expenses) over a particular period, you generate a profit & loss statement (covered below).

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When manually making entries into your general ledger, you (or your bookkeeper) assign income or expenses to the accounts listed in your chart of accounts.

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The chart of accounts for therapists

The chart of accounts is a complete list of all the accounts you use to track income and expenses. You can think of each account as a label for a particular type of transaction.

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Each account falls under a specific category—income, expenses, assets, liabilities, and equity. Each of these categories, in turn, shows up on different financial statements (covered below).

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The chart of accounts differs from one business—and one therapy practice—to the next. It depends on your different types of income and expenses, and the information you need to record.

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For a closer look at the chart of accounts, including a chart of accounts you can adapt to use in your own practice’s bookkeeping, check out the complete chart of accounts for therapists.

Financial statements and your therapy practice 

Financial statements (also called financial reports) take the information in your general ledger and use it to create documents showing how much your practice is earning and how much cash you have on hand.

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A professional bookkeeper may generate financial statements on a monthly or quarterly basis for your practice. Other solutions, like Heard, automatically generate up-to-the-minute statements based on the latest data in your general ledger.

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Most businesses rely on three key financial statements:

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• Profit and loss statement (P&L): Sometimes called an income statement, the P&L report tells you how much your business has spent on expenses, how much it has earned as revenue, and how much it has kept as profit within a particular period.
• Balance sheet: This report tells you how much your business holds in assets, liabilities, and equity. 
• Cash flow statement: Used exclusively with the accrual accounting method, this report reconciles the difference between the income you’ve recorded on the books (e.g. Accounts Receivable) and the income you’ve collected (e.g. your Revenue account). 

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At the end of the year, you generate a P&L, a balance sheet, and a cash flow statement (if necessary) for the entire 12 month period. You then use this information to file your taxes.

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A little more about each statement:

The profit and loss statement for therapy practices

Your P&L simply reports how much you’ve spent and how much you’ve earned, then subtracts your earning from your spending to determine your profit. A typical P&L includes line items for all of your income accounts (e.g. Client Fees, Sales) and all of your expense accounts (e.g. Rent, Insurance, Utilities, Supplies).

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By looking at your P&Ls you can see:

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• Which expenses are having the biggest impact on your profit (the bottom line)
• To what degree your income fluctuates from one reporting period to the next
• Your overall increase or decrease in profitability over time

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For a closer look, check out How to Read a Profit and Loss Statement for Your Therapy Practice (with Example). 

The balance sheet for therapists

Your balance sheet reports your total equity, assets, and liabilities. By comparing your assets to your liabilities, you can see how much value your practice owns (in property as well as cash) compared to the debt it has to pay (in credit, loans, and other amounts owing). 

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You can also see how much of your own investment (or the investments of others) you’ve put into your practice in the form of equity.

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By looking at balance sheets for different periods you can see:

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• How your assets have grown or shrunk over time
• How your liabilities have increased or decreased over time
• The ratio of assets to liabilities, and how it changes

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And by analyzing your balance sheet alongside your P&L for each reporting period, you can see the impact your varying income levels and expenses have on the amount of value your practice holds.

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For more info, check out How to Read a Balance Sheet for Your Therapy Practice. 

The cash flow statement for therapists

Your P&L reports money your practice earns and spends. If you use the accrual method of accounting, you report money you’ve charged clients for as income (Accounts Receivable) and expenses you need to pay as expenses (Accounts Payable).

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But since you enter those transactions when they’re incurred, rather than when money actually changes hands, your P&L doesn’t give you an accurate measure of how much cash you’ve earned and spent over a particular period.

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The cash flow statement acts as a corrective to your P&L, making adjustments so that the numbers you see report cash only.

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Looking at your cash flow statements, you can see:

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• Your liquidity, or how much money you have on hand to spend
• The effect of cash flow on your assets, liabilities, and equity
• Trends in cash flow, so you can anticipate ebbs and flows in cash and plan your spending accordingly
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Insurance bookkeeping for therapists

If your practice bills insurance companies for services you provide clients, it makes your bookkeeping slightly more complex than it would be if you only accepted cash pay.

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Luckily, billing insurance isn’t wildly different from billing a client directly—there’s just an extra account involved.

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The Insurance Reimbursements account records income reimbursed by insurance companies. It’s an income account, meaning it reports money your practice has earned. And it connects with your Accounts Receivable, which reports income you’ve charged for but haven’t collected as cash.

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So, when you bill insurance, you record the amount under Accounts Receivable (as an asset). When you receive payment, it moves to Insurance Reimbursements (as income):

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The exact entry in your books may look slightly different depending on what type of bookkeeping system you have set up. But the general idea is to make sure income in the form of reimbursements is labelled differently from income from cash pay clients. That way, on your P&L, you can measure the impact of insurance reimbursements as a distinct form of revenue on your profits.

Bookkeeping best practices for therapists

If you have a bookkeeper working for you, or if you use Heard, bookkeeping best practices are fairly straightforward: 

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• Make sure your bookkeeper has the information they need to do the books
• Answer any questions they may have about categorizing expenses
• Keep records of every expense you plan to claim as a tax deduction

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It’s a little more complicated if you do your own bookkeeping. Here’s what you need to do to make sure your books are accurate and up to date.

Separate personal and business finances

This actually applies to any therapy practice, whether you use a professional bookkeeper or take the DIY approach.

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If your business cash is mixed up with your personal cash, it leads to headaches and, potentially, costly errors. The moment you go into business, open a separate business checking account (and, if necessary, apply for a separate business credit card).

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That way, when your transactions are automatically imported into your bookkeeping system—or when you review your bank statements to enter transactions manually—there’s no question which transactions are for business and which are personal.

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Plus, if you operate as a limited liability company (LLC), you may compromise your limited liability by mingling personal and business finances (an error called “piercing the corporate veil.”) That means your personal assets may be on the line in case of insolvency or legal proceedings.

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For more info, check out Do I Need a Business Checking and Savings Account for My Private Practice? 

Reconcile the books 

Reconciling the books is the practice of checking information recorded in your general ledger against information recorded in your bank statements. 

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Even when your transactions are automatically imported into software (or into your bookkeeper’s system), mistakes can happen. Transactions may not be imported, or they may be imported more than once. Refunds may not show up, or transactions may be incorrectly categorized.

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At the end of each month, make a habit of reconciling your books with your bank account. It’s part of regular bookkeeping best practices for every business, and it can save you a world of trouble in the form of inaccurate books.

Generate and analyze regular financial statements 

When business is going smoothly and you’re making a healthy profit, you may be tempted to run your bookkeeping on cruise control and neglect your financial statements.

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But even if you aren’t running into trouble now, trouble may be brewing—in the form of stagnant cash flow, for instance, or gradually increasing liabilities, or unnecessary expenses that eat away at your bottom line.

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By making a habit not only of generating but analyzing your financial statements each month, you’ll always be keeping tabs on your finances. You can catch problems before they become serious. Even better, by looking at your statements and comparing them from one month to the next, you may find ways to help your practice make more profit.

Catch up on bookkeeping when you need to

If you’ve fallen behind on bookkeeping, don’t let procrastination make the problem worse.

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Falling behind may take the form of forgetting to import or manually enter transactions on the books, not bothering to generate financial statements, or just generally losing track of where money is going and where it’s coming from.

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That can lead to a sense of shame. There’s a lot of pressure, especially on newly self-employed therapists, to bootstrap their way to financial literacy and take charge of their money from Day One. When you start to slip, it may feel more comfortable to ignore the problem than to confront it head on.

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Out-of-date books not only fail to give you the information you need to run your business well; the problem tends to compound over time. You may find that tax season has suddenly arrived and you don’t have the information to file and pay your taxes. At that point, you’re in a much worse situation—dealing with IRS penalties—than you would be if you had simply gone back and done the work to catch up earlier.

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For a deeper dive, check out How to Catch Up on Bookkeeping for Your Therapy Practice. 

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If you’ve fallen behind on bookkeeping and the problem has become overwhelming, don’t be ashamed to contact a professional bookkeeper for help. Or get in touch with us here at Heard. We can catch up on your bookkeeping for you and keep it on track for the future.

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Common bookkeeping pitfalls for therapists

As well keeping on top of bookkeeping best practices, it’s a good idea to recognize the problems therapists most commonly run into when doing their books. Here’s what you need to watch for if you plan to do your own bookkeeping.

Missing entries

Whether an entry is missing from the books because you forgot to make it or because your accounting software failed to import the transaction, it throws a wrench into the gears of your bookkeeping. 

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Left undetected, missing entries can create discrepancies in your financial reports months later, and even cause trouble when tax season rolls around.

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The solution: Reconcile your books each month.

Miscategorizing entries

Especially when you’re just starting out, it’s easy to make mistakes categorizing bookkeeping entries. 

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Minor errors—like labeling an insurance reimbursement as cash paid directly by your client—may not spell disaster. But they tend to add up, leading to inaccurate financial statements that fail to reflect how your business is really performing. 

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The solution: Familiarize yourself with your chart of accounts and double check your entries.

Sticking with systems that don’t work

A common dilemma for therapists whose businesses are growing: They’re comfortable using spreadsheets or the accounting software they started their practice with, and stick with it even as the workload becomes unmanageable. The stress from financial admin can spill over into other parts of their business, and even lead to burnout. 

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If bookkeeping is starting to stress you out, track how much time you spend on it each week. Then translate those hours into your hourly rate for seeing clients. That’s the cost of bookkeeping for your practice. Consider whether you’d be willing to spend the same amount, in cash, on a professional solution.

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The solution: Remain flexible and open to new ways of managing your finances, and make the switch when the time is right.

Throwing out records

For every tax-deductible expense you claim, you should have records on hand to back that claim up. 

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For instance, if you claim $24,000 in deductions for office rent on your taxes, you should have receipts from your landlord proving you paid all $24,000 over the course of the year. In the event of an audit, the IRS will ask for proof supporting all your claims. If you come up short, you could be on the line for the tax you originally deducted.

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The solution: Set up a recordkeeping system and hold on to all proofs of purchase for at least three years.

HIPAA compliance and bookkeeping for therapists

For the sake of remaining HIPAA compliant, you need to ensure none of your clients’ protected health information (PHI) is recorded in your bookkeeping system.

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PHI includes any evidence that clients received care from you, including their names. Any software that stores your clients’ name must be certified HIPAA compliant—meaning it meets certain security standards for HIPAA. 

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If you’re using software like QuickBooks or Xero—or if your bookkeeper is using it—you are not using a HIPAA-compliant method for storing data. What’s more, if your bookkeeper—or your accountant, or any professional outside your practice—has access to information in your general ledger, and your general ledger includes your clients’ names, you’re in breach of HIPAA.

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Whatever bookkeeping solution you use, follow these best practices to keep client information secure:

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• Avoid including client names or any other information in ledger entries (e.g. in notes or account names used to identify payment from clients)
• When you need to refer to a particular client in your books, use a confidential client number to do so
• Only invoice clients using HIPAA-compliant software, like your EHR
• Do not share clients’ names or personal details when discussing business with bookkeepers, accountants, tax preparers, or any other financial professionals

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For more on HIPAA, check out the HIPAA Compliance Checklist for Therapists.

Is the cost of bookkeeping tax deductible for therapists?

Good news: Any money you spend on bookkeeping software, hiring a bookkeeper, or using Heard is 100% tax deductible.

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You can report your total bookkeeping expenses for the year with Schedule C of Form 1040, on line 17 as “legal and professional services.”

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You can also deduct the cost of hiring accountants or tax professionals on the same line.

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For a list of every deductible back office expense, check out our complete list of tax deductions for therapists.

Key takeaways

• Bookkeeping is the practice of recording financial transactions for your therapy practice.
• A tax preparer (CPA or EA) uses your bookkeeping information (including year-end financial reports) to file your taxes.
• By keeping up with bookkeeping, you gain insight into how your business is performing and make tax season simpler.
• Cash basis accounting only records when money changes hands, while accrual accounting records when income is earned or expenses incurred.
• The general ledger is where you record and categorize all transactions for your business.
• The three key financial reports are the P&L (measuring your profit), the balance sheet (measuring your assets, liabilities, and equity) and the cash flow statement (correcting discrepancies between accrual accounting and cash on hand).
• For the sake of HIPAA compliance, your clients’ personal health information (PHI) or other information should never appear in the general ledger (or in any other part of your bookkeeping system).

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With Heard Bookkeeping, you get done-for-you monthly bookkeeping and easy-to-understand financial reports. Click here to learn more.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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