Bookkeeping explained
What do monthly bookkeeping reports look like?
An income statement explains income and expenses over a period. A balance sheet shows what the business owns and owes on a particular date. Looking at both helps you understand why profit and the bank balance can be different.
Follow one simple month below. The figures are fictional, in US dollars, and show how the reports connect. This is an educational example rather than an actual customer report.
Download the worked example (.txt)Prepared by Aldro Accounting · Published October 19, 2026
The example business
Example Service Business starts September with $5,000 in its bank account and the same amount in owner equity. It collects $10,000 from customers, pays $3,500 in operating expenses, and the owner withdraws $2,000.
To keep the example simple, all revenue is collected and all expenses are paid during the month. There is one bank account. Inventory, receivables, payables, loans and tax balances are outside this example.
Income statement
| Income and expenses | Amount |
|---|---|
| Service revenue | $10,000 |
| Contractor services | $1,500 |
| Office rent | $1,200 |
| Insurance | $300 |
| Software | $200 |
| Bank fees | $100 |
| Advertising | $200 |
| Total expenses | $3,500 |
| Net profit before tax | $6,500 |
Balance sheet
| Assets, liabilities and equity | Amount |
|---|---|
| Cash / total assets | $9,500 |
| Liabilities | $0 |
| Opening owner equity | $5,000 |
| Add current-month profit | $6,500 |
| Less owner withdrawal | -$2,000 |
| Closing owner equity | $9,500 |
| Total liabilities and equity | $9,500 |
Why isn’t profit the change in cash?
Profit is $6,500, but cash increases by $4,500. In this example, the $2,000 owner withdrawal reduces cash and owner equity. It does not appear among the operating expenses above.
A real business can also have unpaid invoices, unpaid bills, loan movements and other reasons for a difference. The reports need to reflect its actual records and accounting method.
| Opening bank balance | $5,000 |
|---|---|
| Customer receipts | $10,000 |
| Operating payments | -$3,500 |
| Owner withdrawal | -$2,000 |
| Closing bank balance | $9,500 |
Questions to ask about your own reports
- Which period and accounts does the report cover?
- Have the bank and credit card accounts been reconciled?
- Are any records missing or transactions still unresolved?
- What explains the difference between profit and cash?
A matching bank balance is one useful check. It does not, by itself, establish that every transaction is complete or correctly categorized.
General reference: IRS Publication 583, Recordkeeping explains income statements and balance sheets for US businesses. Checked October 19, 2026. This worked example is not a tax return or an assessment of your business’s filing requirements.