Chart of accounts, accrual vs cash, why your bank balance isn't profit, and the four reports every founder should read monthly.
Most early-stage founders treat accounting as a 'Tally will handle it' problem — until a funding round, an audit, or a tax notice forces them to read their own numbers and they realise they can't. This piece covers the eight concepts every founder should own personally, even when the books are outsourced.
The CoA is the spine of your books — every account into which a transaction can be recorded. A well-designed CoA produces a P&L and Balance Sheet you can read; a sloppy one produces ledgers you can't trust.
Limit accounts to ~50 at the start. A founder who can't recite their CoA from memory has too many accounts.
| Concept | Cash | Accrual |
|---|---|---|
| Recognise revenue when | Cash is received | Invoice is raised |
| Recognise expense when | Cash is paid | Bill is received / used |
| Allowed for tax (India) | Only for very small biz | Mandatory above thresholds |
| Reflects true performance | No | Yes |
Almost every entity with audited accounts must use accrual. Tally / Zoho Books / QuickBooks all default to accrual. Cash-basis is allowed under Section 145 for very small businesses and certain professions — but founders who switch to cash basis to 'simplify' their books are usually masking a working-capital problem.
This is the single most common founder misconception. Bank balance ≠ profit, for four reasons:
Spend 30 minutes a month on these. Anyone who can't read their own monthly P&L will struggle in any due diligence.
| Margin | Formula | What it tells you |
|---|---|---|
| Gross margin | (Revenue − COGS) / Revenue | Pricing power |
| Operating margin | (Revenue − COGS − OpEx) / Revenue | Operational efficiency |
| Net margin | Net profit / Revenue | Bottom-line health |
| EBITDA margin | EBITDA / Revenue | Cash-generation efficiency |
Working capital = Current Assets − Current Liabilities. The ratio you actually care about is the Cash Conversion Cycle: Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) − Days Payable Outstanding (DPO). If your CCC is 75 days and you grow 10% a month, you need ever-larger working capital just to keep operating. Many profitable startups fail here.
Buying a ₹6 lakh machine doesn't hit your P&L as a ₹6L expense. Under the Companies Act / IT Act, you depreciate it over its useful life — typically 5–15 years. Misclassifying capex as expense and vice versa is one of the most common errors in self-maintained books.
These show up on your Balance Sheet as 'Statutory Dues Payable'. If the number is growing, your cash flow has a hole.
| Tool | Best for |
|---|---|
| Tally Prime | Traditional Indian SMBs, CA-friendly |
| Zoho Books | Online businesses, GST automation |
| QuickBooks | International ops, SaaS |
| Xero | Global services / agencies |
| Custom + Hubdoc / Dext | Mid-stage VC-funded startups |
For most early-stage businesses, an outsourced CA team is dramatically cheaper than even a junior in-house accountant — and gives access to senior expertise on demand. Cross the ₹10–15 Cr revenue mark and a hybrid model (junior in-house + outsourced CA review) usually wins.
Accounting isn't bookkeeping — bookkeeping is. Accounting is the discipline of translating transactions into decisions. Build the literacy as a founder, hire the execution, and you'll never be the person in the room who doesn't understand their own numbers.
Senior contributor at Taxpex Consultancy. Reviewed by a practising Chartered Accountant. Published on 4 May 2026 · Updated on 4 May 2026.
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