23 Jul What is double-entry bookkeeping?
In short, double-entry bookkeeping is what it means to “balance the books.”
In double-entry bookkeeping, two separate entries are required for each transaction.
That means if you record a debit in one spot, you should also record a credit in another so the entries can be checked against each other. If done correctly, all things will be equal (debit and credit will be the same).
For example, if you borrow money, you would make two entries, one in “Cash” and one in “Loans Payable.”
The method dates back 1,000 years but the earliest recording of the methods is from 1340 Italy. By the end of the 15th century, double-entry bookkeeping was widely used across the globe.
Double-entry bookkeeping is still the standard method for accounting and recording transactions in business.
Why use a double-entry system?
Above all else, accuracy is the most important part of any business. The double-entry system is so widely used because it reduces errors and fraudulent activities. It also gives a more accurate view of a company’s finances than single-entry bookkeeping.
Because the figures are recorded twice, both revenue and expenses can easily be assessed to calculate profit, loss and income.
It also reduces human error because it provides checks and balances. It reduces the chances that entry gets recorded in the wrong place and, if it is, it can easily be found and corrected. All you have to do is make sure the debits and credits are equal.
Most accounting software automatically records in the double-entry method.
Another reason to use double-entry bookkeeping is that you can directly gather information to compile financial statements. Accurate financial statements are important in managing any company and creating operational budgets. Investors, vendors and lenders will thank you.
To see which bookkeeping service is best for your business, contact Dempsey Vantrease & Follis today.