Choosing the right accounting system for your business is the most important step you need to take in accounting.
It can help you keep a more accurate record of your company's finances and save you a lot of time and money.
And when it comes time to file your tax return, you won't have to dig through stacks of invoices and receipts trying to make sense of it all.
That way, you can spend more time on the important things in your business instead of searching for pieces of paper that are 10 months old.
But if you're new to accounting, you may be wondering what an accounting system even is?
An accounting system can refer to accounting software or accounting systems (single or double entry).
So how do you know which accounting system is the best for your business?
In this guide, we'll explain just that and much more!
What is an accounting system?
An accounting system is a system used to record and organize all of a company's financial data.
The main purpose of accounting systems is to record income, expenses, sales, inventory, taxes, payroll, and create financial reports.
There are many ways to distinguish the different types of accounting systems, but here's what you need to know.
There are three main types of accounting systems:
- Manual accounting systems
- Automated accounting systems
- ERP software.
#1. Manual accounting systems
This is the most traditional type of accounting system. Here you can organize your financial data using pen and paper or an Excel/G Sheets spreadsheet.
A common way to organize the various accounts and financial reports is to use separate spreadsheets. Even though you can automate certain parts of the process with formulas and spreadsheets, you still need to manually track and enter each transaction and make sure everything balances at the end.
As your business grows, manual bookkeeping can become increasingly time-consuming.
That's why most business owners these days use some sort of automated accounting system.
#2. Automated cloud accounting systems
The most common example of an automated accounting system Malaysiais online accounting software (or cloud-based software).
Online accounting software is a system that helps automate parts of the accounting cycle, such as recording journal entries.
Instead of having to manually create a journal entry for each transaction, you can use the software to integrate your bank directly so that a journal entry is automatically created and assigned to the correct accounts each time a payment is made.
With online accounting software, you can also automate things like calculating sales tax, creating financial reports, creating and sending different types of invoices, sending payment reminders for late payments, and more.
This will not only save your small business a lot of time, but also increase the accuracy of your accounting.
- ERP (enterprise resource planning) software.
One of the most well-known examples of ERP software is SAP. This was the standard for accounting software before cloud accounting software came along. You can use it to manage inventory, track expenses, and more.
However, the downside of this software is that it is extremely expensive. This type of software solution can cost more than $10,000 per month, depending on your needs.
As you may have guessed, it has only been used by large companies or corporations.
What are the different types of accounting?
When you are doing the accounting for your business, you also need to decide on an accounting system.
There are two types of accounting systems:
- Simple accounting.
- Double-entry bookkeeping.
Below you will learn what each of these systems means for you.
#1 Simple accounting system
Simple accounting is the simpler accounting system. It is also the only type of bookkeeping that can be done with pen and paper.
With one-time bookkeeping, you only need to create one entry for each transaction that occurs.
What makes this accounting system so easy is the fact that there is no need to keep different journals. All these transactions are recorded in a single journal, the cash book.
#2. Double-entry accounting system
Double-entry bookkeeping differs from single-entry bookkeeping primarily in that two entries are created for each business transaction instead of one.
So every time you make a business transaction, two accounts are changed - one is debited and the other is credited.
If that sounds a little complicated, just think of any transaction you've ever made. You buy a product or service in exchange for money. In this case, the money account decreases and the inventory account (for example) increases.
This is because double-entry bookkeeping clearly reflects the two-sided nature of all financial transactions. It also provides a more organized and accurate method of recording and tracking financial data.
QNE Software SdnBhd (QNE) is a dynamic organization located in Kuala Lumpur (KL) that actively provides Accounting System to the South East Asia market. QNE’s solutions are designed specifically to meet the requirement of local business practices and challenging environments.