Most medium and large businesses use a double entry system which tracks their income and expense AND their assets and liabilities.
Double entry accounting is requiring for all businesses that are required to produce a statement of its assets and liabilities (a balance sheet).
In a double entry system, at least two entries are recorded with each business financial transaction…a debit and credit. Each transaction must balance each other. See more details about basic accounting concepts such as debit and credits.
Take for example the purchase of the computer for your small business. In a single entry system, you would simply subtract the purchase price from your running total.
In a double entry system, you would debit your asset account (Office Equipment or whatever you named it) and credit either cash or accounts payable…depending on how you paid for it. See why a double entry system is best for tracking assets and liabilities?
Note: If you use small business accounting software you probably will not see that two or more accounts are being affected. All that fun double entry accounting stuff is done behind the scenes for you.
For example, if you record a check you wrote for that computer we were talking about above, your accounting software will automatically reduce your Cash account and only ask you for the other accounts affected such as Office Equipment.
See this page for some tips on picking out an affordable user-friendly double entry bookkeeping system.