One-liner Bookkeeping involves keeping track of all financial records, including receipts, invoices, and other documents related to a business’s financial activities. Bookkeeping is a crucial aspect of any business, as it provides a clear and accurate record of the company’s financial position and allows for the preparation of financial statements, such as income statements and balance sheets. Details Recording financial transactions: This involves creating a record of all financial transactions that take place within the business, including sales, purchases, and expenses. Classifying transactions: Transactions should be classified according to their nature, such as whether they are related to sales, expenses, or investments. Summarizing transactions: After transactions have been recorded and classified, they should be summarized in a way that makes it easy to understand the overall financial position of the business. Preparing financial statements: Based on the information recorded in the bookkeeping system, financial statements such as income statements and balance sheets can be prepared. Key definitions Financial transaction: A financial transaction is any exchange of money, goods, or services that involves a business. Examples of financial transactions include sales, purchases, and expenses. Ledger: A ledger is a record of financial transactions that are organized by account. Each account has its own ledger, and the ledger records all transactions that affect that account. Journal: A journal is a record of financial transactions that are organized by date. It is used to record all transactions as they occur, and is the first step in the bookkeeping process. Debit: A debit is an entry in a ledger or journal that represents an increase in an asset or expense account, or a decrease in a liability or equity account. Credit: A credit is an entry in a ledger or journal that represents a decrease in an asset or expense account, or an increase in a liability or equity account. Chart of accounts: A chart of accounts is a list of all the accounts used by a business to record financial transactions. It includes accounts for assets, liabilities, equity, revenues, and expenses. Double-entry bookkeeping: Double-entry bookkeeping is a system of bookkeeping in which every financial transaction is recorded in at least two accounts. This helps to ensure the accuracy and completeness of the financial records. Accrual basis of accounting: The accrual basis of accounting is a method of accounting in which revenue is recorded when it is earned, regardless of when it is received, and expenses are recorded when they are incurred, regardless of when they are paid. Cash basis of accounting: The cash basis of accounting is a method of accounting in which revenue is recorded when it is received, and expenses are recorded when they are paid. Financial statements: Financial statements are documents that summarize a company’s financial position and performance. They include the balance sheet, income statement, statement of cash flows, and statement of equity. KPIs Accuracy: This measures the degree to which the financial records are free from errors and discrepancies. High accuracy is important for ensuring that the financial statements accurately reflect the financial position and performance of the business. Timeliness: This measures the speed at which transactions are recorded and financial statements are prepared. Timeliness is important for ensuring that the business has access to up-to-date financial information in order to make informed decisions. Completeness: This measures the extent to which all relevant financial transactions are recorded in the bookkeeping system. Completeness is important for ensuring that the financial statements accurately reflect the financial position and performance of the business. Compliance: This measures the extent to which the bookkeeping system is in compliance with all relevant laws, regulations, and standards. Compliance is important for avoiding potential legal issues and ensuring that the business is operating in an ethical and transparent manner. Efficiency: This measures the extent to which the bookkeeping system is streamlined and efficient. A more efficient bookkeeping system can reduce costs and save time, allowing the business to focus on other areas of operation. User-friendliness: This measures the ease of use of the bookkeeping system. A user-friendly system can reduce training time and increase productivity, leading to better overall performance. Data security: This measures the extent to which the bookkeeping system is secure and protects sensitive financial data. Data security is important for protecting the business from potential breaches and maintaining the trust of customers and partners. 10 best practices Chart of accounts – A chart of accounts is a list of all the accounts used by a business to record financial transactions. It is important to use a chart of accounts in order to ensure that transactions are recorded in the appropriate accounts and to make it easier to prepare financial statements. Try to carefully curate an exhaustive CoA in order to ensure uniformity. Account Codes – Once the transactions exceed a certain limit, it’s advisable to use account codes and ensure code creation or deletion is done only after approval from managerial levels. This ensures accuracy in classification and consolidation for reporting and FP&A purposes. Close the books once a month – It is important to regularly reconcile accounts in order to ensure that the financial records are accurate and complete. This involves comparing the balances in the bookkeeping records to the corresponding accounts in the bank statements or other documentation. To start with monthly closing is very important and when the company starts growing it can come down to weekly and daily closing. Use a system for tracking expenses – It is important to have a system in place for tracking expenses, such as a system for recording and categorizing payments. All the payments have to be tagged to proper categories and reporting tags. This will help to ensure that all expenses are recorded accurately and that the business is aware of its overall financial position. Bookkeeping not only for compliance but also for decision-making: Bookkeeping must be done not only from the compliance point of view but also from the decision-making point of view. The founders must be made available real-time

One-liner Accounts receivable (AR) refers to the money that a business is owed by its customers for goods or services that have been delivered but not yet paid for. Details AR is typically recorded as a current asset on a business’s balance sheet. It represents the amount of money that the business expects to receive from its customers in the near future, usually within one year or less. Managing accounts receivable involves several key activities: Invoicing: This involves creating and sending invoices to customers to request payment for goods or services that have been delivered. Invoices should include detailed information about the products or services that were provided, the prices charged, and the terms of payment. Credit management: This involves setting credit policies for customers, including credit limits and terms of payment. It also involves monitoring customer creditworthiness and taking steps to reduce the risk of nonpayment. Collections: This involves following up with customers who have not paid their invoices on time to request payment. This may involve sending reminders, making phone calls, or using other means to encourage payment. Reconciliation: This involves reconciling the accounts receivable balance on the business’s books with the actual amount of money that has been received from customers. This helps ensure that the business’s records are accurate and that all payments have been properly recorded. Key definitions Invoice: A document that is sent to a customer requesting payment for goods or services that have been delivered. An invoice typically includes the name and contact information of the business, the name and contact information of the customer, a detailed description of the goods or services that were provided, the prices charged, and the terms of payment. Credit limit: The maximum amount of credit that a business is willing to extend to a customer. This is typically based on the customer’s creditworthiness and the business’s credit policies. Credit terms: The terms under which a business extends credit to a customer, including the payment due date and any late payment fees. Aging report: A report that lists all of a business’s accounts receivable and the length of time that each invoice has been outstanding. This report is used to identify which invoices are past due and need to be followed up on for payment. Days sales outstanding (DSO): A measure of how long it takes a business to collect payment from its customers. It is calculated by dividing the total accounts receivable balance by the average daily sales, and then multiplying by the number of days in a period. A lower DSO indicates that the business is able to collect payment from its customers more quickly. Credit risk: The risk that a customer will not pay their invoices on time or at all. This risk can be managed by setting credit limits, monitoring creditworthiness, and taking steps to reduce the risk of nonpayment. Bad debt: Accounts receivable that are not expected to be collected because the customer is unable or unwilling to pay. This is recorded as a loss on the business’s income statement. KPIs Days Sales Outstanding (DSO): This is a measure of the average number of days it takes a business to collect payment from its customers. A lower DSO indicates that the business is able to collect payment from its customers more quickly. Payment delinquency rate: This is the percentage of customers who are late in paying their invoices. A high payment delinquency rate indicates that the business is having trouble collecting payments from its customers. Write-off rate: This is the percentage of accounts receivable that the business is unable to collect and has written off as a loss. A high write-off rate indicates that the business is having difficulty collecting payments from its customers. Credit approval rate: This is the percentage of credit applications that are approved by the business. A high credit approval rate may indicate that the business is not being selective enough in granting credit, which could lead to higher levels of payment delinquency and write-offs. Average collection period: This is the average number of days it takes the business to collect payment from its customers. A longer average collection period may indicate that the business is having difficulty collecting payments from its customers. Percentage of Current Accounts Receivable:  The big problem with DSO is that it doesn’t consider receivables before they’re due. It’s only concerned with receivables that have already become a problem. So it can’t do anything to help your collections team work proactively. That’s where the percentage of current A/R comes in. The percentage of Current A/R helps you better understand the relative distribution of current and overdue receivables. Instead of just looking at the payments that are late, it helps teams to be more proactive about high-value receivables that are about to come due. Accounts receivable turnover ratio: Your accounts receivable turnover ratio shows how quickly your AR department is collecting payments and turning that money into cash. You can calculate it by dividing net sales by average accounts receivable. The formula for calculating accounts receivable turnover ratio is: ART = net credit sales ÷ average accounts receivable 10 best practices Establish clear payment terms: It is important to clearly communicate payment terms to customers, including when payment is due and any late payment fees that may apply. This helps to prevent misunderstandings and encourages timely payment. Use invoicing and payment software: Invoicing and payment software can help businesses automate their accounts receivable processes, including generating invoices, tracking payment status, and sending reminders to customers. Monitor payment trends: Regularly reviewing payment trends can help businesses identify any problems with their accounts receivable processes and take corrective action. Follow up on overdue payments: It is important to follow up with customers who are late in paying their invoices. This can be done through phone calls, email reminders, or other methods. Consider offering incentives for timely payment: Some businesses offer discounts or other incentives to customers who pay their invoices on time. This can help encourage timely

In accounting, accounts payable refers to the money that a company owes to its creditors or suppliers for goods or services that have been received, but have not yet been paid for.