Accounting

The notebook by the gas stove

It's a warm Saturday afternoon near Triveni Ghat in Rishikesh. The lunch rush is over, and Pushpa didi is wiping down her counter. Her chai-maggi stall is quiet — just two college kids sharing a plate of maggi and a sadhu sipping chai in the corner.

Her nephew Arjun has come from Dehradun for the weekend. He's in his second year of B.Com and has that particular energy of someone who just learned something in college and wants to teach the whole world.

He picks up the old spiral notebook lying next to the gas stove. It's stained with tea and dal, the pages wrinkled from steam. Every page has the same format: date on top, a list of what Pushpa didi spent that day on the left, and what she earned on the right.

"Didi, ye toh aap bahut achha kar rahi ho," Arjun says, flipping through the pages. "But you're only doing half the work."

"Half? I write down everything — every rupee in, every rupee out. What's missing?"

Arjun pulls up a chair. "Let me show you."

That notebook is where our accounting journey begins. Because here's the truth that nobody tells small business owners: you are already doing accounting. Every time you scribble down what you spent and what you earned, you're keeping books. The question is whether you're keeping them well enough to actually use them.

Accounting isn't punishment. It isn't something the government forces you to do (well, partly it is, but that's taxation — a different chapter). Accounting is a language — the language your business uses to tell you how it's really doing.

And if you can't read that language, you're flying blind.

Why every business must keep books

Let's start with the most basic question: why bother?

Pushpa didi has been running her stall for years without "proper" accounting. She knows roughly how much she makes. She knows when business is good and when it's slow. Why does she need anything more?

Here's why:

1. You think you know your profit. You probably don't.

Pushpa didi feels like she makes about ₹15,000-20,000 a month in profit. But when Arjun actually adds up three months of her notebook entries, the real number is closer to ₹12,000. Why? Because she forgot to count the ₹500 she spent on new cups, the ₹1,200 on the gas regulator repair, the ₹300 she gave the electrician. Small expenses that don't feel like "business expenses" but absolutely are.

2. You can't spot problems early.

If your milk costs went up by ₹2 per litre three months ago, and you didn't track it, you've been silently losing ₹60-80 per day without knowing it. Over three months, that's ₹5,400-7,200. Real money.

3. You can't get a loan without books.

Banks and NBFCs want to see your numbers. Not your feeling about how business is going — your actual numbers. No books, no loan. It's that simple.

4. Tax time becomes a nightmare.

When GST filing time comes, or when your CA asks for your income and expenses, you don't want to be scrambling through a pile of receipts and relying on memory. We'll cover taxation in a later chapter, but good accounting makes tax filing almost painless.

5. You can't plan for the future.

Should you hire a helper? Can you afford a better location? Is it time to expand? You can't answer any of these questions without knowing your exact financial position. Gut feeling works until it doesn't.

Bhandari uncle learned this the hard way. For the first ten years of his hardware shop, he kept all his records in his head. He knew his business was profitable because there was always money in the drawer at the end of the month. Then one year, he realized he'd given out ₹2.8 lakh in credit to contractors — and ₹90,000 of it was more than six months old with no sign of being repaid. He hadn't tracked it. That ₹90,000 was effectively lost money that he thought was profit.

"Tab se maine register mein sab likha," he says now. "Jo likha nahi, wo bhool gaya — aur jo bhool gaya, wo doob gaya."

Single entry vs Double entry

Back at Pushpa didi's stall, Arjun is looking at her notebook. Here's what a typical day looks like:

Date: 15 January

SPENT:                  EARNED:
Milk 5L    ₹310        Chai (85 cups)    ₹1,700
Sugar 2kg  ₹90         Maggi (22 plates) ₹2,200
Tea leaves ₹150        Bread omelette    ₹600
Maggi pkt  ₹480        Biscuits etc      ₹350
Eggs 30    ₹210
Bread      ₹60
Gas refill ₹950
Helper     ₹200

Total:     ₹2,450      Total:            ₹4,850

"Didi, this is called single entry bookkeeping," Arjun explains. "You're recording one side of every transaction — either money came in, or money went out. It's simple, and for a small business, it works."

Single entry is like keeping a diary of your money. Money came in? Write it down. Money went out? Write it down. At the end of the day, subtract what you spent from what you earned. Done.

Advantages of single entry:

• Dead simple
• Anyone can do it
• Works fine for very small businesses
• Better than nothing (much better, actually)

Limitations of single entry:

• It doesn't tell you the full picture
• It doesn't track what people owe you, or what you owe others
• It doesn't track your assets (your stove, your tables, your inventory)
• It's hard to catch errors
• It won't satisfy a bank or an auditor

"So what's the other way?" Pushpa didi asks.

"Double entry," Arjun says. "Every transaction gets recorded twice — once as a debit and once as a credit. It sounds complicated, but the logic is actually beautiful."

Double entry — the 500-year-old system that runs the world

Double entry bookkeeping was formalized in 1494 by an Italian mathematician named Luca Pacioli. Every business in the world — from Pushpa didi's chai stall to Reliance Industries — uses this system (or should).

The core idea: every transaction affects at least two accounts.

When Pushpa didi buys milk for ₹310:

• Her cash goes down by ₹310 (money left her pocket)
• Her inventory/supplies go up by ₹310 (she now has milk to make chai)

When she sells 85 cups of chai for ₹1,700:

• Her cash goes up by ₹1,700 (money came in)
• Her revenue goes up by ₹1,700 (she earned income)

Two entries. Every time. That's why it's called double entry.

"But why go through this trouble?" Pushpa didi asks.

"Because it balances," Arjun explains. "If every transaction has two equal entries — one on each side — then at the end of the day, the total debits must equal the total credits. If they don't, you know something is wrong. It's a built-in error-checking system."

For now: If you're running a very small business — a single stall, a freelance service, a small shop — single entry is fine to start. But as your business grows, double entry becomes essential. And if you use accounting software (we'll talk about Tally, Zoho Books, and Khatabook later), the software does the double entry for you. You just enter the transaction, and it handles both sides automatically.

Debit and Credit — the two words that confuse everyone

Here's where most people's eyes glaze over. Debit. Credit. Which is which? Why does "debit" sometimes mean money coming in and sometimes money going out?

Let's make this simple.

Forget everything you think you know about debit and credit from your bank statements. In a bank statement, "credit" means money came into your account and "debit" means money left. That's the bank's perspective, not yours. In accounting, it works differently.

Here's the rule:

That table looks scary. Let's translate it into chai-shop language.

When money comes INTO the business:

• Cash (an asset) increases → that's a debit to cash
• Revenue increases → that's a credit to revenue

Example: Pushpa didi sells chai worth ₹1,700.

• Debit: Cash ₹1,700 (asset went up)
• Credit: Sales Revenue ₹1,700 (income went up)

When money goes OUT of the business:

• Cash (an asset) decreases → that's a credit to cash
• Expense increases → that's a debit to expense

Example: Pushpa didi buys milk for ₹310.

• Debit: Supplies Expense ₹310 (expense went up)
• Credit: Cash ₹310 (asset went down)

The golden rule: Total Debits = Total Credits. Always.

Arjun draws a simple T on a piece of paper. "Think of every account like this T-shape. Left side is debit, right side is credit. Money flows from one T to another. It never disappears — it just moves."

Pushpa didi stares at it for a moment. "So it's like water? It doesn't vanish, it goes from one bucket to another?"

"Exactly, didi. Exactly."

Don't worry if this doesn't click immediately. It takes a little practice. The good news is that if you use any accounting software, you mostly just need to enter the transaction (bought milk, ₹310, paid cash) and the software handles the debit-credit logic. But understanding the concept helps you read your accounts later.

Journal, Ledger, Trial Balance — the three steps

Now that we understand debit and credit, let's see how transactions flow through an accounting system. There are three stages:

Step 1: The Journal (your daily diary)

The journal is where you first record every transaction, in the order it happens. Think of it as the "raw log" of your business day.

Here's what Pushpa didi's journal might look like for January 15:

Every transaction: one debit, one credit. The journal captures it all.

Step 2: The Ledger (organized by account)

The journal is in date order. But what if you want to know: "How much did I spend on supplies this month?" or "What's my total revenue for January?"

That's where the ledger comes in. The ledger takes all the journal entries and organizes them by account.

Cash Account (Ledger)

Now you can see: Pushpa didi started the day (let's say from zero for simplicity), took in ₹4,850, spent ₹2,450, and ended with ₹2,400 in cash.

Supplies Expense Account (Ledger)

Total supplies expense for the day: ₹1,300. Simple.

The journal tells you what happened. The ledger tells you what each account looks like.

Step 3: Trial Balance (the sanity check)

At the end of a period — could be a week, month, or year — you create a trial balance. This is simply a list of all your ledger accounts with their balances, split into debit and credit columns.

Trial Balance for January 15 (one day, simplified)

The totals match. The books are balanced. If they didn't match, you'd know there's an error somewhere and you'd go hunt for it.

"Think of it like this, didi," Arjun says. "The journal is your raw diary. The ledger is your organized filing cabinet. And the trial balance is you checking that everything adds up before you make any decisions."

Pushpa didi nods. "Like checking the cash in the drawer against what the notebook says I should have."

"Exactly. And if the number in the drawer is different from the number in the notebook?"

"Then something is wrong. Either I wrote something down wrong, or someone took money, or I forgot to write something."

"Welcome to accounting, didi."

The three financial statements

Here's where accounting becomes genuinely powerful. From all this recording and organizing, three documents emerge that tell you everything you need to know about your business's health. Think of them as three different medical reports for your business.

1. Profit & Loss Statement (P&L) — "Am I making money?"

The P&L (also called the Income Statement) answers the most basic question: did you make a profit or a loss over a specific period?

It's structured very simply:

Revenue (everything you earned)
- Cost of Goods Sold (direct costs to make/buy what you sold)
= Gross Profit

Gross Profit
- Operating Expenses (rent, salaries, electricity, etc.)
= Operating Profit (or Loss)

Operating Profit
- Interest, Taxes, Other expenses
= Net Profit (or Net Loss)

Here's Pushpa didi's P&L for January (simplified):

PUSHPA DIDI'S CHAI-MAGGI STALL
Profit & Loss Statement — January

REVENUE
  Chai sales                    ₹51,000
  Maggi sales                   ₹39,600
  Other items (omelette etc.)   ₹16,200
  ─────────────────────────────────────
  Total Revenue                          ₹1,06,800

COST OF GOODS SOLD
  Milk, sugar, tea leaves       ₹16,500
  Maggi packets                 ₹14,400
  Eggs, bread, other supplies   ₹8,100
  Gas                           ₹5,700
  ─────────────────────────────────────
  Total COGS                             ₹44,700
                                         ─────────
  GROSS PROFIT                           ₹62,100

OPERATING EXPENSES
  Rent                          ₹6,000
  Helper salary                 ₹5,000
  Electricity                   ₹800
  Cleaning/maintenance          ₹500
  Miscellaneous                 ₹1,200
  ─────────────────────────────────────
  Total Operating Expenses               ₹13,500
                                         ─────────
  NET PROFIT                             ₹48,600

Now Pushpa didi knows: she made ₹48,600 in profit in January. Not "about 15-20 thousand" — exactly ₹48,600 (before taxes). That's a number she can plan with.

Note: These are simplified numbers for illustration. A real P&L would also account for taxes, depreciation, and other items we'll discuss below.

2. Balance Sheet — "What do I own and what do I owe?"

The P&L tells you about a period (this month, this quarter, this year). The balance sheet tells you about a moment — a snapshot of your financial position right now.

It has three sections:

Assets — everything your business owns or is owed.

• Cash in the drawer and in the bank
• Inventory (stock of tea, sugar, maggi packets)
• Equipment (stove, tables, chairs, utensils)
• Money that customers owe you (accounts receivable)

Liabilities — everything your business owes to others.

• Loan from the bank
• Money you owe to suppliers
• Unpaid rent or salaries

Owner's Equity — what's left for you after subtracting liabilities from assets. This is your true "net worth" in the business.

The fundamental equation:

Assets = Liabilities + Owner's Equity

This equation always balances. Always. If it doesn't, something is wrong.

Here's a simplified balance sheet for Pushpa didi's stall:

PUSHPA DIDI'S CHAI-MAGGI STALL
Balance Sheet — as of January 31

ASSETS
  Cash in hand               ₹12,000
  Cash in bank               ₹1,45,000
  Inventory (supplies)       ₹3,500
  Equipment (stove, tables)  ₹35,000
  ───────────────────────────────────
  Total Assets                        ₹1,95,500

LIABILITIES
  Supplier payable (milk)    ₹4,500
  ───────────────────────────────────
  Total Liabilities                    ₹4,500

OWNER'S EQUITY
  Pushpa didi's capital      ₹1,91,000
  ───────────────────────────────────
  Total Equity                         ₹1,91,000

  TOTAL LIABILITIES + EQUITY           ₹1,95,500 ✓

The balance sheet tells Pushpa didi: your business has ₹1,95,500 worth of stuff, you owe ₹4,500 to your milk supplier, and your ownership stake is worth ₹1,91,000.

3. Cash Flow Statement — "Where did the money actually go?"

This is the one that trips people up. "But I already know my profit from the P&L — why do I need another statement about money?"

Because profit is not the same as cash.

You can be profitable on paper and still run out of cash. How? Many ways:

• You sold ₹50,000 worth of goods on credit. Your P&L shows ₹50,000 revenue. But the cash? It hasn't come in yet.
• You bought equipment for ₹2,00,000. Your cash went down by ₹2,00,000. But your P&L doesn't show it as a ₹2,00,000 expense — it shows up as depreciation spread over years.
• You took a loan of ₹5,00,000. Your cash went up, but it's not revenue — it's a liability.

The cash flow statement tracks the actual movement of cash — where it came from, where it went.

It has three sections:

Operating activities — cash from running the business day to day. (Sales receipts, payments for supplies, rent, salaries.)

Investing activities — cash spent on or received from buying/selling big assets. (Bought a new stove, sold old furniture.)

Financing activities — cash from loans, repayments, or owner investments. (Took a bank loan, repaid an EMI, put personal money into the business.)

Rawat ji discovered the importance of cash flow the hard way. He had a great apple harvest — ₹8 lakh worth of apples sold to three big buyers. On paper, his October looked fantastic. But two of the buyers hadn't paid yet. Meanwhile, he needed to pay ₹1.5 lakh for cold storage rental, ₹80,000 for labour, and ₹60,000 for transport. He was "profitable" but didn't have cash to pay his bills.

"P&L mein toh bahut paisa dikhta tha," he told Bhandari uncle. "Par jeb mein nahi tha."

That's the gap between profit and cash flow. And it has killed more small businesses than competition ever has.

The simple way to remember the three statements:

Accrual vs Cash basis — when do you count the money?

This is a surprisingly important distinction that affects how your financial statements look.

Cash basis accounting: You record the transaction when cash changes hands.

• You sell maggi to a customer and they pay you ₹100 cash. You record ₹100 revenue now.
• You receive a gas cylinder but pay for it next week. You record the expense next week, when you actually pay.

Accrual basis accounting: You record the transaction when it happens, regardless of when cash moves.

• You sell maggi to a customer on credit. They'll pay next week. You record ₹100 revenue now — because the sale happened now.
• You receive a gas cylinder today but pay next week. You record the expense today — because you received the gas today.

Most very small businesses use cash basis because it's simpler. You just track money in and money out.

But as your business grows — especially if you give or receive credit — accrual basis gives a more accurate picture.

Bhandari uncle operates almost entirely on credit. A contractor comes, picks up cement, pipes, and fittings worth ₹45,000, and says, "Bhandari ji, mahine ke end mein de dunga." On cash basis, Bhandari uncle would show ₹0 revenue for that sale until the money comes in. On accrual basis, he records ₹45,000 revenue now, and also records ₹45,000 as "accounts receivable" — money owed to him.

The accrual method shows the real economic activity. The cash method shows the real cash position. Both are useful. Most businesses above a certain size (₹1 crore revenue, or if you're a company) are legally required to use accrual basis.

Practical advice: If you're a small business just starting out, cash basis is fine. Keep it simple. But know that accrual exists, because as you grow, you'll switch — and if you use software like Tally or Zoho Books, they typically use accrual basis by default.

Depreciation and Amortization — things lose value

Neema and Jyoti furnished their Munsiyari homestay in 2019. They bought beds, mattresses, chairs, tables, curtains, kitchen equipment — about ₹3,50,000 worth of furniture and fittings.

Three years later, the mattresses are sagging, some chairs are wobbly, the curtains are faded, and the kitchen mixer gave up. The ₹3,50,000 worth of stuff is now worth maybe ₹1,50,000.

"Yeh toh hota hai," Jyoti says. "Cheezein purani padti hain."

She's right. And accounting has a name for this: depreciation.

Depreciation is the reduction in value of a physical asset over time due to wear and tear, age, or obsolescence.

Why does it matter for your books? Because if Neema and Jyoti bought ₹3,50,000 worth of furniture in 2019, it would be wrong to show ₹3,50,000 as an expense in 2019 alone. The furniture didn't "get used up" in one year — it served the business for multiple years. So the cost should be spread across those years.

Common method — Straight Line Depreciation:

If the furniture costs ₹3,50,000 and is expected to last 7 years (with zero value at the end), the annual depreciation is:

₹3,50,000 ÷ 7 years = ₹50,000 per year

Every year, Neema and Jyoti record ₹50,000 as a depreciation expense, and the value of the furniture on their balance sheet goes down by ₹50,000.

Why does this matter practically?

1. Your P&L is more accurate. Without depreciation, your profits would look artificially high in years when you don't buy big things, and artificially low in the year you do.

2. Your balance sheet is more realistic. Your furniture is worth ₹1,50,000 after three years, not ₹3,50,000. The balance sheet should reflect reality.

3. Tax benefits. Depreciation is an expense, and expenses reduce your taxable income. The government lets you claim depreciation to lower your tax bill. (More on this in the Taxation chapter.)

What about amortization?

Amortization is the same concept, but for intangible assets — things you can't touch. Software licenses, patents, brand trademarks, website development costs.

Priya spent ₹4,00,000 building the first version of her agri-tech app. That's not an expense that gets used up in one year — the app will serve the business for years. So she amortizes it over, say, 4 years: ₹1,00,000 per year.

Depreciation = physical things losing value (furniture, vehicles, equipment). Amortization = non-physical things losing value (software, licenses, patents).

The accounting treatment is very similar for both.

Accounts Receivable and Accounts Payable — the credit game

In an ideal world, every transaction would be instant: you sell something, you get paid, done. But in the real world — especially in India — credit is the lifeblood of business.

Accounts Receivable (AR) — money people owe YOU

Bhandari uncle's shop runs on credit. About 60% of his sales are to contractors who take materials and pay later — sometimes at the end of the week, sometimes at the end of the month, sometimes... much later.

On any given day, contractors owe him between ₹3-5 lakh. This number is his Accounts Receivable.

He maintains a bahi (ledger) with each contractor's name and running balance. Ramesh owes ₹78,000. Tiwari builder owes ₹1,12,000. New contractor Sonu owes ₹45,000.

"Credit dena zaroori hai — nahi doge toh woh doosri dukaan chala jayega," Bhandari uncle explains. "But credit control bhi zaroori hai — nahi toh apna paisa doob jayega."

Why AR matters:

• It's money that's legally yours but isn't in your bank yet
• High AR means your cash flow is tight even if your P&L looks great
• Old AR (90+ days) is a warning sign — the older the debt, the less likely you'll collect it
• Too much AR relative to your revenue means you're essentially providing free loans to your customers

Bhandari uncle's AR rules (evolved over 22 years):

1. New customer: no credit for the first 3 orders. Cash only.
2. Regular customer: credit limit based on history. Ramesh gets up to ₹1 lakh. New contractor Sonu gets ₹50,000 max.
3. Any bill older than 60 days: no new credit until the old one is cleared.
4. Review all outstanding balances every Sunday.

Accounts Payable (AP) — money YOU owe to others

The flip side. Accounts Payable is the money your business owes to suppliers, landlords, lenders, or anyone else.

Pushpa didi gets her milk from Sharma dairy. She doesn't pay daily — she settles the bill every Saturday. So by Friday, she owes Sharma ji about ₹1,800-2,000 for the week's milk supply. That's her Accounts Payable.

For Bhandari uncle, AP is bigger. He owes his cement distributor about ₹2 lakh at any time, with a 30-day payment window. He owes the pipe supplier ₹80,000. Electrical fittings supplier: ₹45,000.

The relationship between AR and AP is critical:

If your customers are paying you in 60 days, but your suppliers want payment in 30 days, you have a 30-day gap where you need cash from somewhere else. This is called the cash conversion cycle, and managing it is one of the most important things a business owner does.

Bhandari uncle figured this out through experience: "Main distributor ko 30 din mein pay karta hoon. Agar contractor mujhe 45 din mein pay kare, toh 15 din ka gap hai. Woh 15 din mein mujhe apni jeb se lagana padta hai."

He solved it partly by negotiating better terms with his distributor (40 days instead of 30) and being stricter about collecting from contractors (30 days instead of 45). Now the gap is almost zero.

Reading financial statements — what to look for

You don't need to be a CA to read financial statements. You just need to know what questions to ask.

Reading the P&L

Gross Profit Margin = Gross Profit ÷ Revenue

For Pushpa didi: ₹62,100 ÷ ₹1,06,800 = 58%

This means for every ₹100 of revenue, ₹58 is left after paying for raw materials. If this number drops over time, it means either your costs are rising or you're not raising prices to match.

Net Profit Margin = Net Profit ÷ Revenue

For Pushpa didi: ₹48,600 ÷ ₹1,06,800 = 45.5%

This is your actual bottom-line profitability. For a chai stall, this is excellent. For a hardware trading business, 5-8% net margin is more typical. Different industries have very different "normal" margins.

What to watch:

• Is revenue growing month over month? Or flat? Or declining?
• Are costs growing faster than revenue? (Bad sign.)
• Is your gross margin steady? A shrinking gross margin means you're losing pricing power.
• Are there any unusually large expenses? One-time costs vs recurring problems?

Reading the Balance Sheet

Current Ratio = Current Assets ÷ Current Liabilities

This tells you: can you pay your short-term obligations? If it's above 1, you're in reasonable shape. Below 1 means you might struggle to pay bills.

Debt-to-Equity Ratio = Total Liabilities ÷ Owner's Equity

How much of your business is funded by debt vs your own money? A high ratio means more risk — you owe a lot relative to what you own.

What to watch:

• Is your cash position healthy or dangerously low?
• Are accounts receivable growing too fast? (Means you're piling up credit sales that might not all be collected.)
• Is your equipment aging out? (Low asset value after depreciation — might need big replacement spending soon.)

Reading the Cash Flow Statement

Is cash flow from operations positive?

If your core business operations aren't generating cash, that's a fundamental problem. You might be growing on paper but bleeding cash.

Are you investing appropriately?

Some cash outflow for investment (new equipment, renovation) is healthy — it means you're reinvesting. But too much means you might be overextending.

What's happening with financing?

Taking new loans every month just to stay afloat? That's a red flag. Paying down loans steadily? That's healthy.

Vikram learned to read these statements when he opened his franchise outlet. The franchisor shared monthly P&L templates and expected him to fill them in. At first, it felt like homework. After six months, he realized it was the most useful homework he'd ever done.

"P&L batata hai ki mahine mein kamaya kitna. Balance sheet batata hai ki business kitna strong hai. Cash flow batata hai ki paisa kahan gaya. Teen alag tasveerein, ek hi kahani."

Common bookkeeping mistakes

After Arjun has been helping Pushpa didi for a few hours, he's noticed several things that she — and most small business owners — get wrong.

1. Mixing personal and business money.

This is the number one mistake. Pushpa didi takes ₹500 from the cash drawer to buy groceries for her house. She doesn't record it. Now her business accounts show ₹500 more than what's actually there. Over a month, these little withdrawals add up and her books never match reality.

Fix: Open a separate bank account for the business. Every personal withdrawal is recorded as "owner's drawing." Keep business money and household money strictly apart.

2. Not recording small expenses.

The ₹50 chai you bought for a supplier who visited. The ₹200 auto ride to pick up supplies. The ₹150 phone recharge that's half-personal, half-business. These feel too small to record. But ₹50 a day is ₹1,500 a month is ₹18,000 a year. That's real money vanishing from your books.

Fix: Record everything. Everything. If it costs money and it's for the business, write it down.

3. Not keeping receipts.

You paid ₹3,200 for an electrical repair. No receipt. Three months later, you have no proof of the expense. This matters for tax deductions and for tracking where money went.

Fix: Keep receipts. A simple folder — physical or digital (just photograph them) — organized by month.

4. Recording revenue, not profit.

"Maine aaj ₹5,000 ka business kiya!" No — you had ₹5,000 in revenue. If your costs were ₹3,500, you made ₹1,500. Confusing revenue with profit leads to wildly optimistic decisions.

5. Ignoring accounts receivable aging.

Money that's been owed to you for more than 90 days has maybe a 50% chance of being collected. More than 180 days? Maybe 20%. If you're not tracking how old your receivables are, you're sitting on potential bad debt without knowing it.

6. Not doing monthly reconciliation.

At least once a month, compare your books to your bank statement and the cash in your drawer. If they don't match, find out why. Don't let discrepancies pile up — they become impossible to trace after a few months.

"Didi, you know what the biggest mistake is?" Arjun asks.

"Not keeping books at all?"

"No. The biggest mistake is keeping books but never looking at them. Some people write everything down religiously — but they never sit down at the end of the month and read what the numbers are telling them. That's like writing a diary in a language you don't understand."

Tools — you don't have to do this by hand

The good news: it's 2025, and you don't need to do double entry by hand in a register. There are tools that make bookkeeping dramatically easier.

Khatabook / OkCredit (Free, mobile-first)

Best for: Very small businesses, shopkeepers, street vendors.

These apps are basically a digital version of Pushpa didi's notebook. You record money in, money out, and who owes you what. They send automatic payment reminders to customers via SMS or WhatsApp. Simple, free, and in Hindi.

What they do:

• Track daily sales and expenses
• Maintain customer-wise credit records (digital bahi khata)
• Send payment reminders
• Generate basic reports

What they don't do:

• Full double-entry accounting
• Generate proper financial statements
• Handle GST compliance
• Inventory management

Verdict: Great starting point. If you're Pushpa didi and just want to go digital with your notebook, start here.

Tally (TallyPrime)

Best for: Small to medium businesses that need proper accounting.

Tally is India's most popular accounting software. Your CA almost certainly uses it. It does full double-entry accounting, GST compliance, inventory management, and generates all three financial statements.

What it does:

• Complete double-entry bookkeeping
• GST-compliant invoicing and return filing
• Inventory management
• Payroll
• All financial statements (P&L, Balance Sheet, Cash Flow)
• Bank reconciliation

Cost: Starting at about ₹18,000 for a single-user license (one-time) or ₹7,200/year for the rental model.

Verdict: If you're Bhandari uncle running a shop with credit customers, inventory, and GST obligations, Tally is the gold standard. The learning curve is moderate — many CAs offer basic Tally training.

Zoho Books

Best for: Growing businesses, D2C brands, service businesses, businesses with online sales.

Zoho Books is cloud-based — it works in your browser and on your phone. It's modern, well-designed, and integrates with payment gateways, bank accounts, and e-commerce platforms.

What it does:

• Everything Tally does, plus:
• Cloud-based (access from anywhere)
• Automatic bank feed integration
• Client portal for invoices
• Time tracking (useful for service businesses)
• Multi-currency support
• API integrations with other tools

Cost: Free plan for businesses under ₹25 lakh revenue. Paid plans from ₹749/month.

Verdict: If you're Ankita selling pahadi food online, or Priya building a tech business, Zoho Books is excellent. It's more modern than Tally and better for businesses with online operations.

Which tool should you use?

Ankita started with a notebook when she first began selling pahadi chutneys on Instagram. Then she moved to Khatabook to track which customers had paid. When her monthly revenue crossed ₹1 lakh and she registered for GST, she switched to Zoho Books. Each tool was right for the stage she was at.

"Don't overthink the tool," she says. "Just start recording. A notebook is better than nothing. An app is better than a notebook. Software is better than an app. But the important thing is to start."

Putting it together

It's evening now. The sun is going down behind the hills across the river. Arjun has spent the entire afternoon with Pushpa didi, working through her accounts. They've organized three months of her notebook into a simple ledger. They've created her first-ever P&L statement. And the number surprised her.

"₹48,600 in January? I thought it was around ₹15,000-20,000."

"Didi, you were confusing net profit with the cash left in your drawer after paying for everything. But your rent comes from the business. Your helper's salary comes from the business. Gas, milk, sugar — all business expenses that come out of revenue before they reach your pocket. What reaches your pocket after ALL of that is your net profit. And it's ₹48,600."

Pushpa didi is quiet for a moment. Then she smiles. "So I'm doing better than I thought?"

"Much better. But you'd never know it without the numbers."

Arjun installs Khatabook on her phone before he leaves. "Start with this. Just record what you already record in the notebook — but digitally. I'll come back next month and we'll look at the numbers together."

She looks at the app, then back at her old tea-stained notebook. "You know, I've been running this stall for years. Nobody ever taught me any of this."

"That's because nobody teaches small business owners accounting. They teach it to CA students in classrooms. But the people who actually need it — the people running the businesses — they're left to figure it out on their own."

"Not anymore," Pushpa didi says, pouring him one last cup of chai.

Key takeaways from this chapter:

1. Accounting is not optional. It's the language your business speaks. If you can't read it, you're guessing.
2. Start with single entry (money in, money out) — it's better than nothing. Graduate to double entry as you grow.
3. Debit and Credit are just the two sides of every transaction. Total debits always equal total credits.
4. Journal → Ledger → Trial Balance is the flow of information from raw data to organized knowledge.
5. Three financial statements tell three different stories: P&L (profitability), Balance Sheet (financial position), Cash Flow (actual money movement).
6. Profit is not cash. Never confuse the two.
7. Depreciation spreads the cost of big purchases over their useful life.
8. Track your receivables and payables — this is where cash flow problems hide.
9. Don't mix personal and business money. Seriously.
10. Use a tool. Notebook → Khatabook → Tally/Zoho Books. Just start.

In the next chapter, Pushpa didi discovers something unpleasant: she's been undercharging for her maggi and over-ordering milk. How should she set her prices? How much margin does she really need? It's time to talk about financial literacy — understanding the numbers that drive your business decisions every single day.