Hi As a past CPA, my advice to you would be first to determine if you want to be a cash or accrual basis to account for your business revenue and expenses. Many sole proprietorships use cash basis. It is easy to understand: it is income to you when received and an expense when paid (whether by cash, check, credit card, etc). In this system there are no accounts receivable for income due from clients, no accounts payable for expenses due. Another important point to know is that you cannot switch back and forth as it suits you. You must choose one and stick to it. If you do change accounting systems, then you must inform the IRS. As others have pointed out, the IRS has information to help you choose. If you do not understand the difference, I would suggest working with a local CPA to set up an accounting system for your business. It is worth the money to do so. Joan Peake -- *Joan Peake* *Peake to the Past* 11 Mountain Vista Dr. Morgantown, WV 26508 Phone: 304.685.9433 email: look4kin@gmail.com “A lifetime’s study will not make accessible to us more than a fragment of our own ancestral past, let alone the aeons before our race was formed, but that fragment we must thoroughly possess and hand on.” Possession by A.S. Byatt