Thai double-entry bookkeeping is an accounting method that uses the debit and credit systems to record financial transactions. In Thailand, enterprises and organizations of all kinds employ this highly recognized and used method.
In order for organizations to be able to make wise decisions based on their financial data, this system is crucial for ensuring accurate and consistent financial reporting. We'll go through the fundamentals of Thai double-entry accounting in this post.
Principle 1 - Every transaction has two aspects
Every transaction includes two components: a debit and a credit, which is the essential tenant of Thai double-entry accounting. The accounting system tracks each transaction's financial impact using debits and credits. The asset inflow is shown on the debit side.
As an illustration, when a company buys inventory, it records the transaction as a credit to the cash account and a debit to the inventory account. This indicates that the company's inventory has grown but its cash balance has shrunk. In contrast, a company records a transaction as a credit to the inventory account and a debit to the revenue account when it sells its items. This indicates that the company's sales has grown but its inventory balance has shrunk.
Principle 2 - Assets and Liabilities must always balance
Assets = Liabilities + Equity is the accounting formula used in Thai double-entry bookkeeping. As a result, a company's total assets must always match its total liabilities and equity. The balance sheet equation is another name for this idea.
The balance sheet equation must be maintained while recording every transaction. For instance, when a company takes out a loan, the transaction is recorded as a credit to the loan account and a debit to the cash account. As a result, both the business's cash balance and its obligation to repay the loan have grown. Because the rise in liabilities equals the rise in cash, the balance sheet equation remains in balance.
Principle 3 - Revenues and Expenses are recognized when earned or incurred
Revenues and costs are recorded when they are generated or incurred, which is the third rule of Thai double-entry accounting. This idea is sometimes referred to as the accrual accounting approach.
Revenues are recorded when the good or service is given under accrual accounting, regardless of when payment is made. Regardless of whether payment is paid, expenses are recorded when they are incurred. This theory enables companies to properly match revenues and costs, providing a more realistic picture of profitability.
For instance, revenue is still recorded in December even if a company delivers a product in December but the client does not pay until January. In contrast, the expenditure is still recorded in December if a company receives a rent invoice in December but does not pay until January.
A strong method that guarantees accurate and consistent financial reporting is Thai double-entry bookkeeping. This system is built on the tenets that every transaction has two components, assets and liabilities must balance, and revenues and costs must be recognized when they are generated or incurred. Businesses may make wise judgments based on precise financial facts by adhering to these rules.