An Overview of Accounting Entries
Creating accounting entries refers to the process of making formal records for business transactions that have taken place in the books of accounts. When dealing with accounting entries, the accountants from an accounting firm in Johor Bahru will record the amount debited and credited into the general ledger. There are a few types of accounting entries, which are the transaction entries, adjusting entries and lastly the closing entries.
First and foremost, the first type of accounting entry that we will look at is the transaction entry. This type of entry is one of the most basic ones when any business transactions have happened. Some situations that the accountants would use the transaction entry is when the company received a bill from its supplier, collected cash from its clients (Also see Understanding Cash Collection Cycle), or made a cash payment, which means that it has incurred an expense. The accountants may choose to follow the accrual basis or the cash basis to record business transactions.
Another type of accounting entry is the adjusting entry. When an accounting period has come to an end, the accountants will create this type of accounting entry. Adjusting entries serve to adjust the balances in numerous ledger accounts so that the financial statements produced comply with applicable accounting standards. In most cases, adjusting entries would involve a profit and loss account as well as a balance sheet account.
Also, the accountants will need the closing entries at the end of an accounting period. They post these entries with the aim of shifting the ending balances of the temporary accounts to the retained earnings account. Some examples of temporary account include revenue account, expense account, gain and loss account and the income summary account. By doing so, the accountants will be able to transfer those amounts to the following period.
Business owners can choose whether they prefer using the single-entry system or the double-entry system. Both these systems have their respective pros and cons. A company that uses the single-entry system may not need to hire professional accountants as this system is rather simple without needing a high cost. However, the single-entry system is unable to provide comprehensive data for the business owners, and it is lack of control.
Another system that business owners can use for accounting entries is the double-entry system. By using this system, business owners will be able to keep a complete record for all transactions accurately and systematically. They get to know the financial position and profitability of their business by using the records maintained under this system. Even though there are a lot of advantages of double-entry accounting that business owners and users of financial statements can benefit from, this system has some disadvantages too. The double-entry accounting system is much more complicated than the single-entry system. Hence, it is not suitable for those who run a small business. Moreover, business owners need to spend more money on this type of system.