How should a small business record accounts receivable and accounts payable?
Record each sales invoice as a receivable when issued and each supplier bill as a payable when received, then clear them when money moves. Review ageing reports monthly to chase late customers and plan payments. Unpaid balances at year end appear as assets and liabilities in the financial statements.
Accounts receivable (AR) is money customers owe you. Accounts payable (AP) is money you owe suppliers and others.
Receivables
- Issue numbered invoices and record them in the sales ledger when issued.
- Record receipts against the specific invoice.
- Run an ageing report (current, 30, 60, 90+ days) every month and follow up.
- At year end, review old balances with your accountant. Amounts unlikely to be collected may need an allowance or write-off under the accounting standard you use.
Payables
- Record each supplier bill with its due date.
- Match bills to purchase orders or delivery notes before paying.
- Pay on due dates and record payments against the bill.
- Keep a list of expenses incurred but not yet billed (accruals), such as utilities or professional fees.
Why it matters legally. Section 373 requires a record of the company's assets and liabilities, and the IRD expects records that let profits be worked out, including for services or goods sold. AR and AP records are how you evidence both.
Keep supporting documents (invoices, delivery notes, statements) for the seven-year retention period.
Legal basis
- Companies Ordinance (Cap. 622), s.373
- Inland Revenue Ordinance (Cap. 112), s.51C
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- What is the difference between bookkeeping and accounting in Hong Kong?Bookkeeping is the day-to-day recording of transactions: sales, purchases, payments and receipts. Accounting uses those records to prepare financial statements, interpret results and support tax and audit work. In Hong Kong the law cares about both: the company must keep adequate records, and its directors must prepare financial statements from them.
- Is a Hong Kong company legally required to keep accounting records?Yes. Section 373 of the Companies Ordinance (Cap. 622) requires every company to keep accounting records that explain its transactions and show its financial position and performance at any time. Directors who fail to take all reasonable steps risk a fine of HK$300,000, and up to 12 months' jail if the failure is wilful.
- What must a Hong Kong company's accounting records contain?The law names two things: daily entries of all money received and spent, with what each was for, and a record of the company's assets and liabilities. Beyond that, the records must be sufficient to explain transactions and show the financial position accurately at any time.
- How long must a Hong Kong company keep its accounting records?Seven years. Under section 377 of the Companies Ordinance, a company must keep its accounting records for 7 years after the end of the financial year to which the last entry relates. The Inland Revenue Department separately requires business records to be kept at least 7 years after the transactions they relate to.
- What does section 51C of the Inland Revenue Ordinance require from my business?Anyone carrying on a trade, profession or business in Hong Kong must keep enough records, in English or Chinese, to work out assessable profits, and keep them for at least 7 years. Failing to do so without reasonable excuse can lead to a fine of up to HK$100,000.