Full Accounting Guide For Daycare Businesses in 2026
Real-world bookkeeping, payroll, tax and cash flow tactics for operating a compliant, profitable childcare program
In 2026, running a daycare is all about maintaining a careful balance between providing quality care and keeping budgets tight. This guide breaks down the accounting ABC’s that every childcare provider needs: chart of accounts, revenue tracking, payroll, expense allocation, budgeting, reporting and internal controls. Here’s how to keep clean books, know profitability by classroom or program and get ready for audits or tax filings: Deposit Reporting at the Bank Level.
Create a sensible chart of accounts
Begin with a chart of accounts that’s customized for childcare operations. Main categories include tuition income, registration fees, government grants and subsidies, food program reimbursements, gift/donation income or payroll expenses or taxes (and to what it applies) rent/mortgage utilities supplies classroom materials insurance professional fees depreciation other operating costs Split income and expense with subaccounts by classroom or program (infant, toddler, preschool, after care) to enable per-child cost and pricing accuracy.
Bookkeeping best practices
Record transactions promptly and consistently. Day-to-day matching of bank and payment accounts eliminates mistakes. Keep close track of tuition invoices and receipts, whether a child is signed up, discounts or late fees. Restricted income for those centers that receive subsidies or grants should be recorded separately with expenses charged to these subsidies/grants only as allowed by the terms of the funding. Keep receipts, documentation of other transactions; keeping accurate records can ease tax prep and support compliance checks.
Revenue recognition and tuition management
Choose how you acknowledge revenue: by attendance, enrollment or invoice schedule. Consistency is essential. Develop written policies for deposits and tuition credit and refund, as appropriate; document within the enrollment agreement. Monitor who owes you what and put in place a robust collection process, such as reminders, statements and escalation ensuring your cash flow is safeguarded. Track enrollment by season and simulate its impact on monthly revenue.
Payroll, benefits, and staffing costs
Payroll is typically the most expensive. Keep true-time data for hourly employees and exception salary schedules for teachers and admins. Keep records of payroll taxes, worker classification (employee versus contractor), and benefits like health contributions or retirement matches. Add in paid time off, substitute coverage and the cost of training. If feasible, assign payroll and related expenses to programs or classrooms to get the real cost per child.
Allocating overhead, and figuring a per-child cost
Use a reasonable driver (square footage, enrollment) to spread fixed overhead (rent, utilities, and insurance) across programs. For variable costs, such as food and supplies, they should be assigned by attendance or consumption. Determining the per-child monthly or annual cost is a principle in establishing tuition rates that should both pay expenses and provide added margin for reinvestment or reserves.
Budgeting and cash flow forecasting
Develop an annual budget, including monthly detail. Forecast revenue based on your enrollment targets and an analysis of historical trends. Make sure to account for both fixed and variable costs, along with a reserve for unforeseen breakdowns or staff shortfalls. Create a cash flow projection at least 12 months out to project shortfalls in low-enrollment months and for timing of payroll and other large costs. Hold a cash reserve of at least some weeks (say, 6 to 12) of operating expenses.
Internal controls and separation of duties
Establish easy, internal controls to lower your fraud risk: separate cash handling from bookkeeping functions, have two signatures on large checks, compare monthly bank statements with records and limit access to accounting records. Periodically spot check the petty cash and make policies be reviewed at least annually. Standardize refund, discount and vendor payment approval process.
Dealing with grants, gifts and designated funds
Record as restricted income any grants or donations which you receive for particular activities, including the purposeful holding of special events. Expense tracking by each restricted source and preparation of reports to funders, as required. Do not mix your restricted funds with general operating accounts to assure transparency and grant compliance.
Depreciation and capital expenditures
Keep a separate list of capital purchases (playground equipment, furniture, vehicles) and capitalize only those items that meet your threshold. Amortize assets throughout their useful lives and amortize the expense monthly so that actual operating costs are recognized. That is, budget for the future replacement of these major items rather than responding to them as one-offs.
Tax considerations and year-end preparation
Keep such records that are necessary for payroll tax returns, sales and excise tax returns, and annual information returns. Maintain proper records for employee classification, contractor agreements and benefits provided. Create a year-end to-do list: balance accounts, verify prepaid and accrued expenses, value your supplies inventory and confirm that W-2/W-3 or the equivalent is in place. Check with a tax professional for local and/or state childcare tax regulations, or credits and exemptions.
List of daycare financial KPIs
Track KPIs on a monthly basis: enrollment rate, revenue per child, occupancy percent, staff-to-child ratio, payroll as a percentage of revenue, days cash-on-hand and accounts receivable aging net operating margin. Use these ratios to see trends early on — an increasing payroll percentage or growing receivables could be a sign that you need to take action in your operations.
Reporting and communicating with stakeholders
Create monthly financial reporting package (P&L, cover sheet and cash report) summarizing budget variances versus actual results. Serve up top-line reports to board members, owners or managers; serve up granular reports for program directors in making classroom level decisions.
Practical tips and frequency
- Reconcile bank accounts and credit card statements on a monthly basis.
- Review payrolls and time records with supervisors at the end of every pay period.
- Generate cash flow projections and keep them current on a monthly basis.
- Review your internal finance quarterly and have a thorough budget review annually.
Record retention and compliance
Maintain tax and payroll records for the legally required amount of time in your jurisdiction, plus an extra buffer for audits — typically at least seven years for tax records. Keep teacher certifications, staff background checks, and enrollment agreements safe yet accessible for regulatory compliance.
Last-minute To Do List for Plans 2026
- Create a program/discrete-based chart of accounts for childcare.
- Adopt Uniform Revenue Recognition and Invoicing Policies.
- Implement payroll controls and assign personnel costs by program.
- By Steve Berkowitz Install a rolling 12 month cash flow forecast and maintain an operating reserve.
- Keep track of restricted funds separately and ensure compliance with grants.
- Track KPIs and present to leadership monthly.
Conclusion
Sound accounting practices help leaders of daycares make confident decisions about staffing, pricing and expansion. Through structured bookkeeping, transparent reporting and disciplined controls, childcare providers can safeguard their programs, serve families in a sustainable way and invest in quality care.” Begin with the simple ones above and then advance your financial operations each year to keep up with growth and changes in regulations by 2026.