The double-entry bookkeeping is a standard system utilised by both big and small business, specifically accounting firms in Malaysia.The main idea of double-entry is the concept that each transaction includes a minimum of two accounts or more (Also see Single Entry System Versus Double Entry System) .
For instance, if you take a loan to broaden your business, the cash account of your company will increase by the quantity of the loan and its liability will also increase by the same amount. The interest account will be impacted. If your business buys a printing device, its bank account or cash account will reduce depending on the payment method. The printing device account will increase by the value of the printing device.
The main goal of the double-entry bookkeeping is to keep a balance, and this is why the double-entry principle uses the accounting equation.
Owner’s equity + Liabilities = Assets
In the double-entry accounting system, the quantities input at the debit side for one account need to be equal to the credited quantity for the same transaction (Also see Different Types of Special Journals and Subsidiary Ledgers).
The main concept in the double-entry accounting system is that every transaction has two results that need to be accounted for. This is referred to as the duality principle, and it suggests that although the business spends cash of its accounts, it gains something. Without acknowledging the fact that a company acquires assets for every expenditure, the accounting system would give a limited view of how the business handles its money (Also see How Accounting Service Helps Small Business).
The double-entry accounting system can be used thoroughly. For instance, when buying fixed assets, making payments for products purchased in credit, getting a bank loan, paying bills, and more. The most crucial thing is to keep in mind that for each transaction, two or more accounts are impacted.
This accounting principle will assist you to keep complete records that show how your company manages its cash flow. Hence, if you have been utilising Microsoft Excel sheets that only show the transaction, it is time to begin keeping complete records that show different accounts impacted by a transaction. This will make it much easier for you to handle your cash flow. Reach out to any accounting firm in Johor Bahru so that you can understand more about your business.