Every amount is recorded twice
Money always comes from somewhere and goes somewhere. When the company pays AED 500 rent from the bank, the bank goes down by 500 and the rent cost goes up by 500. Double-entry accounting records both sides, every time. Because both sides are always equal, the totals of all accounts always balance — and if they do not, something is definitely wrong. That check is what makes the books trustworthy.
You rarely write both sides yourself. An invoice, a payment, a depreciation run or a pay run writes them for you. You write them by hand only in a manual journal.
The five kinds of account
| Kind | What it holds | Examples |
|---|---|---|
| Assets | What the company has or is owed | Bank, cash, money customers owe, equipment, input VAT to recover |
| Liabilities | What the company owes | Suppliers, loans, output VAT due, salaries payable, gratuity |
| Equity | What belongs to the owners | Capital put in, profits kept in the business |
| Income | What the company earns | Sales of goods and services, other income |
| Expenses | What it costs to earn it | Cost of goods sold, rent, salaries, depreciation |
Assets, liabilities and equity make up the balance sheet — a picture at one moment. Income and expenses make up the profit and loss — a story over a period.
Each account also has a category that places it within its kind: a Current asset (due within a year) or a Fixed asset (kept for years); a Current liability or a Long-term liability; Revenue or Other income; Cost of sales, Operating expense or Tax. A Contra account sits against another and reduces it — accumulated depreciation reduces fixed assets.
Debit and credit, without the folklore
Debit and credit are just the two sides of an entry. They do not mean good and bad.
| Kind | A debit… | A credit… |
|---|---|---|
| Asset | increases it | decreases it |
| Expense | increases it | decreases it |
| Liability | decreases it | increases it |
| Equity | decreases it | increases it |
| Income | decreases it | increases it |
So paying rent from the bank is: debit Rent (the expense goes up), credit Bank (the asset goes down). Receiving a customer's payment is: debit Bank, credit Accounts Receivable.
Accrual and cash
On the accrual basis — the one your accounts are prepared on — income counts when you invoice and a cost counts when you are billed, whether or not money has moved. On the cash basis only money that actually arrived or left counts. The reports can show either; the books are the same.
This is why an invoice and its payment are separate screens: the invoice records the sale and the debt, the payment settles the debt. The income is never recorded twice.
Control accounts
A few accounts are kept by the product itself, because a sub-list must add up to them: Accounts Receivable (the total of every unpaid invoice), Accounts Payable (every unpaid bill), the VAT accounts, Net Pay Payable, Bank Suspense, Rounding Differences and Opening Balance Equity. They cannot be chosen on an ordinary line, because an amount written straight into them would belong to no customer, supplier or return.
Nothing posted is ever edited
Once an entry reaches the ledger it is permanent. To correct it you reverse it — a new entry with every side flipped, which cancels the original — and post the right entry after it. The original stays visible, marked reversed, with the entry that reversed it beside it.
This is not the product being awkward. An edited entry means last month's reports no longer add up to what you already filed or gave your bank. A reversal keeps both the mistake and the correction on the record, which is what an auditor needs.
How the reports fit together
- The trial balance lists every account's balance. Debits must equal credits.
- The profit and loss takes the income and expense accounts over a period. What is left is the profit.
- The balance sheet takes the asset, liability and equity accounts at a date. This year's profit appears inside equity, which is why it balances.
- The cash flow explains why the bank balance moved — which is not the same as profit.
- Every figure on a report opens the general ledger for that account, which lists every entry behind it.