Accounting Cycle

The accounting cycle

The accounting procedure, from start to finish, follows what is called an accounting cycle. This article will give you an idea of what happens in the accounting process and reaffirm the importance of record keeping. If you are not familiar with any of the terminology or is still in the early stages of learning about accounting, you may have to re-read this article.

The Accounting cycle is a series of steps in recording an accounting event from the time a transaction occurs to its reflection in the financial statements. These steps in the accounting cycle provides means of organising and keeping track of financial transactions.

Stage 1. Analyse Business Transaction

This is the transaction identification process. A business may carry out many activities that do not represent business transactions. The processing of accounting data begins with an economic transaction. Each transaction must be analysed in terms of its effect on the components of the basic accounting equation. The question must be asked: Has the financial position (assets, liabilities and shareholders equity) of the company changed? If yes, this is a business transaction and must be recorded.

Where two or more parties engage in an exchange of goods or services for some form of consideration, a business transaction has taken place. Evidence of this happening is the receipt or some form of a source document. Common examples of source documents include:
– Sales receipt
– Purchase invoice
– Debit/credit memorandum
– Copy of a contract entered into
– Cancelled cheque
– Billing statement
– Correspondence containing other financial information

There are a multitude of source documents, varying in type and format used to record significant data. It is these which become the basis for data input to the accounting process.

Stage 2. Journalise the Transactions

After transactions are classified they are then entered in the books of original entry (also called Journals). The Journals or books of original entry give a chronological (day-to-day) record of business transactions. Examples of books of original entries are:

  • Sales Journal (Sales Day Book) – Used to record credit sales
  • Purchases Journal (Purchases Day Book) – Used to record credit purchases
  • Return Inward journal – Used to record sales returns
  • Return Outwards Journal – Used to record purchases returns
  • Petty Cashbook – Used to record small purchases and other payment that you do not want crowding the cashbook.
  • Cashbook – Used to record cash transactions (sales or purchases)
  • The Journal or General Journal – This is a chronological (day-to-day) record of business transactions. For each transaction the journal shows the debit and credit effects on specific accounts. The contributions of journal to the recording process are:

  • It discloses in one place the complete effect of a transaction

  • It provides chronological record of transactions
  • It helps to prevent or locate errors since the debit and credit amounts of each entry can be readily compared

Stage 3. Posting to Ledger Accounts

Posting involves transferring debits and credits from the journals to the ledger accounts. Double entry (where entries are divided into debits and credits) is the method of recording transactions, which allows a check on accuracy of the recording. This system is based on the concept that business can be described by a number of variables or accounts, each describing an aspect of business in monetary terms. Each transaction has a ‘dual effect’. Double entry bookkeeping is governed by the accounting equation. At any time the following must be true:

Asset = liabilities + capital
A = L + C

Trial Balance

Trial Balance

Stage 4. Prepare a Trial Balance

A Trial Balance is a list of all debits and credits in the ledger accounts and their balances at any given time.
The Primary purpose of the trial balance is:-
1. To prove the mathematical accuracy of the debit and credit posting
2. Uncover errors in journalising and posting
3. In addition, it is useful in the preparation of financial statements

Limitations of  the Trial Balance
There are numerous errors that may exist in a trial balance, whereby both sides still balance despite this.

Stage 5. Adjusting entries

Adjusting entries are made at the end of the accounting period to ensure that revenues are reported when earned and expenses are reported when incurred. Every adjusting entry involves the recognition of either revenue or expenses. Revenue and expenses represent changes in owner’s equity. However, owner’s equity cannot change by itself, there must also be a corresponding change in either assets or liabilities (as per accounting equation noted above). Thus every adjusting entry affects both the Income Statement account (revenue or expense) and the Balance Sheet account (asset or liability). Rarely if ever do adjusting entries include an entry to cash. Adjusting entries are based on the concept of accrual accounting.

Stage 6. Adjusted Trial Balance

This is prepared after all adjusting entries have been journalised, posted and the affected accounts balanced. It shows the balance of all the accounts, including those that have been adjusted at the end of the accounting period. Its purpose is to prove equality of total debit and credit balances.

Balance sheet

Balance Sheet

Income Statement

Income Statement

Stage 7. The Financial Statements

The financial statements can be prepared directly from the adjusted trial balance. They are used to report the financial position of the business. Financial Statements include: –

  1. The Balance Sheet
  2. Retained Earnings Statement
  3. Income Statement
  4. Cash flow Statement
Cash Flow Statment

Cash Flow Statement

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Stage 8. Making Closing Entries

Here the balances of the temporary (nominal) accounts are brought to zero. These are the temporary owners equity accounts, revenue, expenses and withdrawals – these accounts only accumulate data for one year at a time.

A. Revenue accounts – closed into Income Summary account
B. Expense accounts – closed into profit and loss
C. Drawing account – closed into Owner Capital account

Stage 9. Prepare Post-Closing Trial Balance

After all the temporary accounts have been closed, then the focus is turned to the real accounts and these include assets, liabilities and capital accounts. These balances remain open. The preparation of a post closing trial balance is to prove that debits and credits are equal after closing the ledger.

Stage 10. Reversing entries

The reversing entries are made at the beginning of the next accounting period and is the exact opposite of adjusting entries made in the previous period.

a. It is the last step done after closing entries but dated the first day of the next accounting year
b. It reverses/nullifies the Adjusting entries for Accruals and Accrued Revenue
c. Its purpose is a self-correcting mechanism for the next/new accounting year

Accounting is not an area to be feared and you do not have to understand all of it but especially when you run your own business it is good to have some idea.

I will be posting more articles about this topic in the future so please feel free to check back later.


25 Free and Open Source Accounting Software

Free accounting software for all

There are a number of free and open source double-entry accounting systems available to cater to the needs of freelancers and small and medium-sized business owners. Below is a list 25 Free and open source accounting software that you might find useful.

GnuCash Accounting software

1. GnuCash

GnuCash is an open source personal and small-business financial accounting software. It allows you track bank accounts, stocks, income and expenses.


  • Double-Entry Accounting
  • Stock/Bond/Mutual Fund Accounts
  • Small-Business Accounting
  • Reports, Graphs
  • QIF/OFX/HBCI Import, Transaction Matching
  • Scheduled Transactions
  • Financial Calculations


Platforms: GNU/Linux, BSD, Solaris, Mac, Windows




jgnash Personal Finance software

2. jGnash

jGnash is a personal and business double-entry accounting software.


  • Double Entry Accounting with reconciliation tools
  • Supports multiple currencies
  • Budgeting with multiple scenario options and export to spreadsheet capability
  • Investment Accounts and automatic import of Stocks, Bond, and Funds price history
  • Nestable accounts with automatic roll-up of totals
  • OFX (Open Financial Exchange), QFX (Quicken Financial Exchange), mt940, and QIF (Quicken Interchange Format) import capabilities
  • Reminders and automatic transaction entry and notifications
  • Intelligent handling of multiple currencies and exchange rates with automatic online exchange rate updates
  • Printable reports with PDF (Portable Document Format) and spreadsheet export capability
  • XML (Extensible Mark-up Language) and relational database file formats
  • Operates on any main-stream PC operating system


Platforms: Linux, BSD, Solaris, Mac, Windows

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Grisbi accounting and home finance software

3. Grisbi

Grisbi is a personal financial management system that has been around for about 14 years. It comes with a reasonable set of home finance features.


  • Accounting
  • Budget
  • Reports
  • Clean UI


Platforms: BSD, Linux, Mac, Windows

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Money Manager Ex - free and open source money management software

4. Money Manager Ex

Money Manager Ex is an easy to use money management application. It is a personal finance manager.


  • Track your net worth
  • Income / expenses
  • Budgeting (monthly/yearly)
  • Track stocks/mutual fund investments grouping them in specific account
  • General reports created with SQL queries, LUA functions and HTML + JS frontend
  • More than 30 languages available
  • Import data from QIF and CSV (Comma-Separated Values) files. Export data to QIF, CSV and HTML
  • Includes all the basic features most users would want to see in a personal finance application


Platforms: Linux, Mac, Windows

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Turbo Cash Accounting

5. TurboCASH Accounting

TurboCASH Accounting is a community developed, SME (Small & Medium-sized Enterprise) accounting package for single users, small networks and distributed networks. It accommodates developer scripts, local plug-ins and multi language translation. TurboCASH is available in 25 languages, covering over 80 different tax regimes.


  • SME Accounting package
  • General Ledger
  • Debtors, Creditors, Stock


Platforms: Windows

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6. PostBooks® ERP, accounting, CRM

xTuple PostBooks® ERP (Enterprise Resource Planning) / accounting / CRM (Customer Relationship Management) is a full-featured, fully-integrated business management system, the core of the award winning xTuple ERP Suite. PostBooks® is built to run in the cloud or on a local server. It provides power and flexibility for a range of businesses and industries of any size.


  • Full accounting (general ledger, accounts receivable and payable, bank reconciliation, financial reporting)
  • Sales (quotes, order entry, sales reporting, shipping)
  • Integrated CRM (universal address book, incident management, opportunity management, to-do lists, project management, vendors)
  • Purchasing (purchase orders, receiving, vendor reporting)
  • Product Definition (items, infinite-level bills of material)
  • Inventory and Distribution (multiple locations, other advanced warehouse features)
  • Light Manufacturing (work orders, strong support for make-to-order)
  • Fully integrated OpenRPT report writer to customize reports, Qt Designer to customize screens
  • Rich REST API built with PostgreSQL database views, encapsulates all business logic and data integrity
  • Mobile Web application, fully integrated with classic Desktop client to manage business and enrich customer and prospect relationships from tablets or smart phones – on-the-go, any time, anywhere


Platforms: BSD, Windows, Mac, Linux

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7. OpenBravo ERP

Openbravo ERP is a business management system that automates all of the core business processes for small and medium enterprises, putting them in full control over accounting and financial management, sales, purchasing, inventory management, master data and more. Openbravo ERP is released in a Community as well as a Professional version.


  • Finance and accounting
  • Purchasing Management
  • Sales Management
  • Inventory Management
  • Project Management
  • Production Management
  • Point of Sale
  • Business Intelligence
  • And many other modules (see http://www.openbravo.com/modules-catalog)


Platforms: Linux, Windows, Mac

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osfinancials - accounting software

8. osFinancials Accounting Software

osFinancials is a free accounting package (free for single user mode), easy to install, impressive database capabilities with Firebird as a database. It features easy to install Stock control and point of sales integration with good support and plug-ins. It also provides for integration with osCommerce and VTigerCRM. One can import from osCommerce, Virtue-mart, Magento, Zenchart etc.


  • Full accounting software
  • Stock control
  • Cash register
  • Link to e-commerce solutions
  • Plug-ins that make business processing easier
  • Professional support online GMT +1 09.00 till 17.00 working days
  • Comprehensive Reports
  • Robust Access Control
  • Easy Bank Reconciliation
  • Internet and Network Capabilities
  • Point-of-Sale (POS)
  • Plug-in Software
  • Multi-lingual
  • Country Specific Accounts
  • Full Stock Control
  • XML Export and Import
  • T-Account Viewer
  • T-Ledger Viewer
  • Advanced Search Engine
  • Easy Backup/Restore
  • VAT/GST/TAX Accounting
  • osCommerce webshop plug-in
  • VTiger plug-in
  • Multi-user


Platforms: Windows, Mac

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Kmymoney - Personal Finance Manager

9. KMyMoney

KMyMoney is the Personal Finance Manager for KDE desktop environment, it is very easy to use. It operates similar to Quicken, supports various account types, categorisation of expenses, multiple currencies, online banking support via QIF, OFX and HBCI, budgeting and a rich set of reports.


  • Double entry accounting
  • Easy to use personal finance manager, especially for the non-technical user
  • Online transaction download (HBCI and OFX)
  • Lots of predefined reports / charts
  • QIF importer to get historic data into KMyMoney
  • 160+ pages user documentation


Platforms: BSD, Linux, Window, Mac

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PhreeBooks Accounting software

10. PhreeBooks Accounting

PhreeBooks Accounting is a web-based open source ERP (Enterprise Resource Planning) / accounting application for the small business community. PhreeBooks platform is browser independent and easily translated into many languages.


  • Management of inventory (labour, stock and assemblies)
  • Customer/vendor accounts
  • POS
  • Interface to e-commerce
  • Multi-user level security
  • Standard/Custom reports
  • Full Featured Web Based (ERP) Accounting
  • Multiple Language, Users with Individual Security Settings
  • Runs on Windows/Mac/Linux, PHP and MySQL
  • Multiple Currencies and Multiple Branch Support
  • Interfaces to E-Commerce, Payment Gateways
  • Modular Architecture for Customization
  • Inventory Management including Assemblies
  • Project Tracking by Tasks and Cost Codes
  • Integration with FedEx for Shipping Cost Estimates and Label Generation
  • Powerful Report Tool for Customized PDF Reports or Downloadable Data


Platform: Linux, Mac, Windows, Web

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FrontAccounting ERP

11. FrontAccounting

FrontAccounting is a popular, free and web-based accounting system, released under the GNU General Public License. FrontAccounting is a simple, but powerful, system for the entire ERP chain.


  • General Ledger with Budget
  • Purchase Orders / Sales Orders
  • Goods Receivable Notes
  • Supplier Invoices/Credit Notes
  • Customer Invoices/Credit Notes
  • Payments / Deposits
  • Allocations
  • Accounts Payable / Accounts Receivable
  • Items and Inventory
  • Stock
  • Manufacturing
  • Dimensions
  • Multi-Language and Currency
  • Several Companies


Platform: Linux, Mac, Windows, Web

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12. webERP Accounting & Business Management

webERP is a complete web-based accounting and business management system that requires only a web-browser and PDF reader to use. It has a wide range of features suitable for many businesses particularly businesses in wholesale, distribution and manufacturing. When combined with a 3rd party interactive desktop Point-of-Sale system it can also form the hub of a dispersed multi-branch retail management system. A fully integrated webSHOP is also available as a 3rd party add-on. webERP is as an open-source application and is available as a free download to use with all the PHP code written in an accessible way for you to add your own features as needed.


  • Sales Orders
  • Accounts Receivable
  • Purchase Orders
  • Accounts Payable
  • General Ledger
  • Contract Costing
  • Shipment Costing
  • MRP (Material Requirements Planning)
  • Multi-Currency – auto updated exchange rates
  • Standard Costing
  • Weighted Average Costing
  • Multi-Inventory Location
  • Multiple Invoice Taxes
  • Serial Numbered Inventory and Lot Tracking
  • Fixed Asset Register
  • Manufacturing
  • Multi-level Bills of Material
  • Ghost Bills
  • Kitsets and Assemblies
  • Expense Claims
  • Sales Analysis
  • Multi-Language – utf8 support
  • PDF reports
  • Readable PHP code so allowing business people to understand scripts
  • Low foot-print, fast, simple code


Platforms: Linux, Windows, Mac

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Jfire - Free Java ERP and CRM

13. JFire

JFire is a free trading platform including ERP, CRM, and accounting. JFire’s comprehensive, free and powerful open-source ERP solution comes with a high degree of flexibility. The system has a wide range of ready-to-use features for trading and billing, business analysis, issue tracking, customer relationship management (CRM) and many more.


  • Enterprise Resource Planning
  • Customer Relationship Management
  • Sales Management
  • Purchasing Management
  • Issue Tracking
  • Inventory Management
  • Finance and accounting


Platforms: Linux, Window, Mac

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ARIA - web-based accounting

14. ARIA

ARIA (Accounting, Receiving and Inventory Administration) is a web-based accounting and inventory management, GPL (General Public License) software based off the NOLA project. ARIA’s aim is to be platform and browser independent with multi-language support.


  • Accounting
  • Receiving and Inventory Management
  • Payroll
  • Cash flow control
  • ERP


Platforms: Linux, Windows, Mac

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15. Simple Accounting System

Simple Accounts is a financial accounting system package developed in open source PHP, MySQL projects. The objective of the project is to host the accounting package on the web and maintain day to day financial transactions and produce financial reports for individuals, sole proprietorship companies, small and medium sized companies.

This system works in the Client Server Model. Apache, PHP, MySQL should already be installed and the downloaded zip must be installed into the Document Root directory.


  • Write Journal Entries.
  • View Ledgers or accounts details.
  • Generate and view Trail Balance
  • Generate and view Balance Sheet
  • Enter Cash transactions
  • Record expenses and receipts under relevant accounts / group head
  • Record Sales transactions
  • Enter Purchase transactions


Platform: Web

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16. Simple Accounting

Simple Accounting is suitable for the Sole Traders or very small businesses.


  • Manage Customers
  • Manage Products
  • Create Orders & Invoices
  • Import Banking Data
  • VAT Analysis
  • Record receipts including scanning to database
  • Reconcile expenses to Bank Data
  • Branded Product Labels
  • Create Branded Product Labels
  • Branded Order, Invoice & Label with your own corporate logo etc
  • Bank Statement Import & Reconciliation
  • All Data accessible – click of a button export to Excel



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LedgerSMB - small and medium-sized business ERP/Accounting17. LedgerSMB

The LedgerSMB project brings ERP /accounting software to small and medium-sized businesses. LedgerSMB is an ERP, featuring accounting (including AR, AP, and GL), quotation and order management, and more, for businesses with small to medium transaction volumes.


  • General Ledger (GL)
  • Invoicing/AR(Accounts receivable) /AP (Accounts payable)
  • Recurring Transactions
  • Inventory Tracking
  • Financial Reports
  • Point-of-Sale
  • Project Accounting
  • Time Tracking
  • Budgeting
  • Multiple Currencies


Platforms: BSD, Linux, Mac, Solaris, Windows

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18. Lazy8 Ledger

Lazy8 Ledger is an open source, professional double-entry accounting ledger with advanced reporting and analysis. It is streamlined for very easy installation with a simple, friendly and intuitive user interface. It is free for both personal and commercial use. This accounting program is designed for people who have experience in bookkeeping.


  • Double entry accounting
  • Multi-company – you can do bookkeeping for as many different companies as you want
  • Reporting
  • Graphs that show visual representations the business’ money and cash flow
  • General Ledger
  • Chart of accounts – you may enter your own chart of accounts and break out each account into different categories for project or customer
  • 100% Unicode compatible
  • Operating system independent – Written in Java which means that any operating system that can run Sun’s Java 1.4, can run this program – that means most operating systems
  • Reports (Balance/result report, Transaction report, Account summary report, Chart of accounts report, Customer/project report, EU BAS 2003 Result report, EU BAS 2003 Balance report, EU BAS 2003 VAT report, Tools to make your own report definitions and a SQL report generator)
  • Financial analysis (Bar charts, 3D bar charts, line graphs, pie charts / Show trends in any single account –  daily, weekly, bi-weekly, monthly, bi-monthly, quarterly, bi-annually, annually / Accounts may be grouped together in any combination in the trend graphs / Predefined groups for trends – profit, assets, debts, incomes, expenses /Several periods may be compared. For example, last years profit may be compared to this years profit per month in a bar chart
  • Import/Export – Compatibility with other accounting systems


Platforms: Linux, Windows, Mac

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19. APAC Accounting and Business Management

This is the APAC Accounting and Business Management project. APAC Accounting and Business Management is an open source software that will let you perform Accounting, Billing and Point-Of-Sale tasks. It is free for both personal and commercial use.


  • Point-of-sale
  • Invoicing
  • Job Costing
  • Production
  • Orders
  • Quotations
  • Inventory (Stock)
  • Accounts Receivable (Debtors)
  • Accounts Payable (Creditors)
  • General Ledger
  • Management Reports, Reconciliation


Platform: Windows

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20. Account Manager

Account Manager is a free accounting software for small business. It handles multiple accounts and users.


  • General ledger
  • Cash management
  • Bank reconciliation
  • Expense claims
  • Accounts receivable and Accounts payable
  • Estimates and quotes
  • Purchase orders
  • Billing and invoicing
  • Credit notes / Delivery notes / Sales orders
  • Stock and inventory
  • Time and service billing
  • Asset register and depreciation
  • Capital accounts Profit and loss statement Balance sheet
  • Multi-currency Custom fields Customisable invoices
  • Chart of accounts
  • Journal entries
  • Aged receivables / Aged payables
  • Customer statements / Remittance advices
  • Comparative reporting
  • Project-based accounting
  • Import bank statements
  • Recurring billing
  • Cash-basis accounting / Accrual-basis accounting
  • Departmental accounting Payroll Manufacturing
  • Email templates
  • Drill down reports
  • Email tracking


Platforms: Linux, Windows, Mac

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21. Professional Practice Open Accounting

Open Accounting is a time, job, and expense billing system. It is well suited for professionals in private practice such as consultants, diagnosticians, and lawyers (among others) and some non-profit organisations that do not maintain inventory. The software can handle accounts for multiple customers doing business with multiple organisations.

The software is provided free of charge for commercial use under the GNU General Public License. However since the software is written in Microsoft Access, the run time engine is not open source.


  • Automated periodic retainer or pledge billing.
  • Bills for time by the hour with manual override or by the job.
  • Separate categories for billing expenses.
  • Generates statements for any period using a start and stop date.
  • Account balance report shows all balances or only outstanding receivables.


Platform: Windows

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22. Turquaz Financial Accounting

Turquaz Financial Accounting is a complete double-entry finance solution targeting small and medium-sized enterprises.


  • Inventory Management
  • Accounts receivable/accounts payable
  • General ledger
  • Journal
  • Multi currency
  • Advanced report and analysis


Platform: BSD, Linux,Windows

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23. CK-ERP

CK-ERP is an open source accounting / educational / MRP / ERP / CRM system that runs on top of multiple middlewares. It is suitable for SMEs and comprises 32 modules.


  • Contact Management
  • Customer Relationship Management
  • Customer Self Service
  • Vendor Relationship Management
  • Material Requirement Planning
  • Warehouse
  • Inventory
  • Service
  • Accounting Ledger
  • Bank Reconciliation
  • Accounts Payable
  • Accounts Receivable
  • Purchase Order
  • Sales Order
  • Quotation
  • POS for Cashier / Manager
  • Human Resources
  • Staff Self Service
  • Payroll
  • Administration
  • Internationalization
  • Access Control
  • Data Import
  • Teacher
  • Counsellor
  • Student
  • Applicant
  • Family
  • Registrar
  • Education Administration
  • Volunteer Management


Platforms: BSD, Linux

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24. Dolibarr ERP – CRM

Dolibarr ERP – CRM is an open web software to manage small to mid-sized businesses, foundations or freelancers. It includes inventory, warehouse, order, invoice, shipment, POS, members for foundations, bank accounts. Dolibarr is also available with auto-installers for users with no technical knowledge to install Dolibarr and all its prerequisites (Apache, Mysql, PHP) with just one package.


  • Contacts, customers and suppliers management
  • Products management
  • Invoices management
  • Orders management
  • Contracts management
  • Agenda
  • Foundations management module
  • Point of sale
  • Project management and Gantt charts
  • Bank account management and reconciliation
  • Ledger
  • Stock management
  • Mass emailing
  • Management of employees leave requests
  • LDAP integration
  • Links to e-commerce
  • Import/Export wizards
  • A lot of other external modules (technical interfaces or business features)
  • Installer for Windows, Debian/Ubuntu, Fedora/Redhat/OpenSuse or online Server
  • Also available from Cloud suppliers: saas.dolibarr.org


Platforms: Windows, Debian/Ubuntu, Fedora/Redhat/OpenSuse / Windows, Mint, Mandriva, Mageia, Web

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iceB Accounting software

25. iceB

iceB is a personal and corporate financial accounting software that can manage multiple accounts, multiple bases, and multiple users. It manages third parties, expenditures, and receipts categories, and also budgetary lines, financial years, and more.


  • GUI (GTK2+) and Console interface for Linux and Windows
  • Accounting (bookkeeping) system
  • Keep and make documents a new feature
  • Linux (source, .deb), Windows 7 (MSI) support and installations
  • Multi-platform (support work in Windows with GUI and console-terminal interface)
  • Support and integration from developer
  • Multi-bases (enterprises)
  • Good documentation and ini-files
  • Supports Ukrainian and Russian interfaces
  • Database in MySQL any versions


Platforms: Linux/Unix and MS Windows (include Windows7)

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Single and Double Entry Bookkeeping

Single-entry accounting and Double-entry accounting

It should not matter what type of business you operate, and even if you are a freelancer, it is important to keep track of your work or business expenses. The type of business you operate, the level you are at, and your potential for growth and expansion, should all play a part when choosing bookkeeping methods.

Single Entry or Double Entry Bookkeeping

Bookkeeping Methods

The two main options for keeping your accounts are the single and double entry systems of accounting.

Single-entry Accounting

The single-entry accounting system is often likened to a register. It only takes account of what comes in and what goes out, nothing else. In effect, it is a daily and monthly summary of cash disbursed or received. The two tables below show examples of accounting records using the Single-Entry Accounting method.

Example 1

Date Description Amount ($)
Jan 3, 20xx Starting balance (Capital) 2,500.00
Jan 4, 20xx Office Furniture (833.40)
Jan 9, 20xx Digital copier 100.00
Jan 13, 20xx Scanner 89.00
Jan 18, 20xx 4 Piece Office set 599.00
Jan 19, 20xx Repairs and maintenance (1,100.00)
Jan 23, 20xx Utilities (205.00)
Jan 28, 20xx Scanner 89.00
Jan 31, 20xx Ending balance 1,238.60

Example 2

Date Description Revenue ($) Expenses ($) Balance ($)
Jan 3, 20xx Starting balance 2,500 2,500
Jan 4, 20xx Office Furniture (833.40) 1,666.60
Jan 9, 20xx Digital copier 100.00 1,766.60
Jan 13, 20xx Scanner 89.00 1,855.60
Jan 18, 20xx 4 Piece Office set 599.00 2,454.60
Jan 19, 20xx Repairs and maintenance (1,100.00) 1,354.60
Jan 23, 20xx Utilities (205.00) 1,149.60
Jan 28, 20xx Scanner 89.00 1,238.60
Jan 31, 20xx Ending balance 1,238.60

While Single entry accounting is very easy to implement and use, it is criticised for being an incomplete system. It is not guided by rules and principles, does not allow for arithmetical accuracy, proper checks and balances or show a true profit and loss position.

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Double-entry Accounting

In the double entry accounting system, each account has a debit and a corresponding credit. At the end total debits must be equal to total credits – if they do not equate then this is an indication that something is incorrect – maybe an item was omitted, a wrong figure was recorded or it could be a number of other possibilities.

One can choose between using an accounting software or a double entry spreadsheet to record financial information. If you are not familiar with bookkeeping, an accountant should be able to help you with the basic set-up and explanation as to the use of one of the more manageable accounting systems available. This is especially important for limited liability companies since more is required of them by tax authorities, for example, they are required to file annual returns, and pay specific taxes. An accountant can also help to direct staff as to proper record keeping procedures.

Despite the benefits of using an accountant, due to finances, it is not always possible to hire help; so if you prefer, you could opt to learn the accounting basics first, then try to manage on your own using an accounting software. There are many accounting tutorials available online to help you get started.

The double entry system of accounting by design is the more detailed and accurate of the two. Its balance sheet allows for a check of arithmetical accuracy of the accounts, it works within specific time periods, looks at both sides of a transaction and incorporates real and nominal accounts. Guided by many accounting rules and principles, it is also viewed as scientific and systematic, and gives a more accurate reflection of a business’ profits and losses and overall financial position.

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In addition to choosing a bookkeeping method, here are some things to do in order to put your business expenses into perspective:

Bank accounts

  • Keep separate accounts for business and personal use
  • Establish an overdraft facility with your bank even if you do not think you need it now
  • Deposit cash with the bank as soon as it is received


  • Make budgets for production, sales and cash flow. Always match your budgeted projections with what actually occurred and analyse the results


  • Make payments by cheques
  • Set credit limits for each supplier, make sure credit terms are agreed to and complied with. Of course in business you will need to ‘give and take’ at times but be careful of what you give and what you take
  • If possible, establish a fund for petty cash. Do not make purchases from sales or your cash register!

I will be posting other articles and resources to help in this area.