Accounting Bookkeeping Basics

Accounting and Bookkeeping Basics

Managing accounting and bookkeeping processes — from financial statements and chart of accounts through accrual vs cash accounting, reconciliations, and closing the books.

When to Use

• Setting up accounting for a new business
• Understanding financial statements (P&L, Balance Sheet, Cash Flow)
• Managing accounts payable and receivable
• Preparing for tax filing or audits
• Building financial reporting processes

Accounting Framework

ACCOUNTING_CONCEPTS = {
    'double_entry': 'Every transaction affects at least two accounts (debit = credit)',
    'accrual': 'Revenue recognized when earned, expenses when incurred (not when cash moves)',
    'cash_basis': 'Revenue recognized when cash received, expenses when paid',
    'gaap': 'Generally Accepted Accounting Principles — standard framework',
}

class ChartOfAccounts:
    """Standard chart of accounts categories."""
    def __init__(self):
        self.accounts = {
            'assets': ['Cash', 'Accounts Receivable', 'Inventory', 'Equipment'],
            'liabilities': ['Accounts Payable', 'Accrued Expenses', 'Deferred Revenue', 'Loans'],
            'equity': ['Common Stock', 'Retained Earnings', 'Paid-in Capital'],
            'revenue': ['Product Revenue', 'Service Revenue', 'Interest Income'],
            'expenses': ['COGS', 'Salaries', 'Rent', 'Marketing', 'Software', 'Professional Fees'],
        }
    
    def add_account(self, category: str, name: str):
        if category in self.accounts:
            self.accounts[category].append(name)

Common Pitfalls

1. Mixing personal and business finances — separate bank accounts and credit cards
2. No chart of accounts — without structure, categories become inconsistent
3. Not reconciling monthly — bank rec catches errors; do it monthly
4. Misclassifying expenses — CAPEX vs OPEX matters for tax and financial reporting
5. Forgetting deferred revenue — cash received for not-yet-delivered services is a liability

Verification Checklist

• Chart of accounts established
• Separate business bank account and credit card
• Accounting software configured (QBO, Xero, FreshBooks)
• Bank accounts reconciled monthly
• Accounts payable and receivable tracked
• Invoicing system set up with payment terms
• Sales tax registration (if applicable)
• CPA/tax advisor engaged for tax planning
• Financial statements reviewed monthly (P&L, Balance Sheet, Cash Flow)