Bookkeeping

Bookkeeping

Bookkeeping is the foundation of financial veracity. Reliable accounting requires double-entry rigor, adherence to the accrual principle (ASC 606 / matching principle), structured Chart of Accounts (COA) taxonomy, and disciplined month-end close checklists.

1. Chart of Accounts (COA) Taxonomy

Organize accounts in a standard five-digit hierarchical numbering schema:

• 10000 – 19999 Assets: 10100 Operating Cash, 10200 Treasury MMF, 11000 Accounts Receivable, 12000 Prepaid Expenses.
• 20000 – 29999 Liabilities: 20100 Accounts Payable, 21000 Accrued Expenses, 22000 Deferred Revenue (Unearned).
• 30000 – 39999 Equity: 30100 Common Stock, 30200 Additional Paid-in Capital (APIC), 30300 Retained Earnings.
• 40000 – 49999 Revenue: 40100 SaaS Subscription Revenue, 40200 Professional Services, 40300 Refunds/Discounts.
• 50000 – 59999 Cost of Goods Sold (COGS): 50100 Cloud Hosting (AWS/GCP), 50200 Payment Gateway Fees (Stripe), 50300 Customer Support Salaries.
• 60000 – 69999 Operating Expenses (OpEx): 61000 R&D Salaries, 62000 Sales & Marketing, 63000 G&A (Legal, Accounting, Rent).

2. Double-Entry Journal Entry Discipline

Every transaction must satisfy the fundamental balance sheet equation: $$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Example: SaaS Customer Annual Prepayment ($12,000 on Jan 1)

• Initial Cash Receipt (Jan 1):
  • Debit: 10100 Operating Cash $12,000 (Asset increases)
  • Credit: 22000 Deferred Revenue $12,000 (Liability increases)
• Monthly Revenue Recognition (Jan 31):
  • Debit: 22000 Deferred Revenue $1,000 (Liability decreases)
  • Credit: 40100 SaaS Subscription Revenue $1,000 (Revenue increases)

3. Month-End Close Checklist (Target: Day +5)

Execute the close systematically across 5 working days:

• Day 1: Reconcile all bank, credit card, and payment processor accounts (Stripe clearing balance vs bank deposits).
• Day 2: Reconcile Accounts Receivable and post bad debt allowances.
• Day 3: Reconcile Accounts Payable, review unbilled purchase orders, and record vendor accruals.
• Day 4: Post prepaid expense amortizations (insurance, annual SaaS tooling) and depreciation schedules.
• Day 5: Run Trial Balance verification; review P&L variances against previous month; lock accounting period.

Critical Rules

1. Never mix cash-basis reporting with accrual revenue recognition; recognize revenue in the period performance obligations are satisfied.
2. Every balance sheet account must have a supporting reconciliation schedule matching the trial balance to the cent.
3. Once an accounting period is locked, never post retrospective adjustments directly to that period; record prior-period adjustments via current period journal entries.

Verification Checklist

• Bank and credit card accounts reconciled to official institution statements.
• Stripe / payment gateway clearing accounts balance to zero after in-transit transfers.
• Deferred revenue schedule ties directly to active customer contract terms.
• Prepaid expenses amortized according to benefit period.
• General ledger debit and credit totals balance exactly.

Anti-Patterns

• NEVER book customer annual upfront payments directly as immediate revenue.
• NEVER categorize expenses into generic "Miscellaneous" or "Ask My Accountant" buckets past month-end close.
• NEVER leave personal founder expenses commingled with corporate operating bank accounts.