Find Out What Double-Entry Is
This system of bookkeeping provides a more detailed look at your financial exchanges. Find out what double-entry is.
If you are new to bookkeeping, double-entry bookkeeping may seem complicated.
We will try to break down essential things you need to know about it, how it works and what’s the difference between double and single-entry bookkeeping.
This type of system can look like double the work you would usually do. But, on the other hand, it can show you a complete and finished picture of how your money moves through your business.
One of the key reasons for using double-entry accounting is so you can report any assets or liabilities on the balance sheet. Having this in mind, you should know that without double-entry accounting, you can only report an income statement. What this means is that the financial position of a business is dependent on using double-entry accounting.
Double-Entry Definitions: Find Out What They Are
If you plan on learning a double-entry accounting system, you should know that it requires a good understanding of credits and debits. You can learn their definitions below:
- What is a debit definition?
A portion of an accounting entry that can increase an asset as well as it can decrease a liability account is debit. You can find it positioned on the left side of an accounting entry.
- What is a credit definition?
A part of an accounting entry, that can increase a liability account or decreases an asset is what we call credit. Credits can be found positioned on the left side.
Debits represent all the money flowing out of your account, while credits represent all the money flowing into your account. Both of these terms are standard procedures when using double-entry accounting.
How Does This Bookkeeping Work?
First and foremost, if your business does any type of transaction, double-entry occurs.
If you want to dig more into this, you should also know that double-entry bookkeeping has some rules that you should be know.
The most important rule is about credits and debits. Because both are responsible for different parts of your chart of accountants.
Double-Entry Accounting Software
Nowadays, most up-to-date accounting software is based on the double-entry system.
Whenever you enter your transaction, typically that would be an invoice, a bill, or some type of check transaction is going to automatically happen as part of the programming.
If you’re still thinking about what accounting system to choose, you should go and check your balance sheet.
You can get this sheet from your accounting software. You don’t have to input anything other than the date of your report, and voilà, you are using a double-entry system.
Be aware that even if you use some sort of accounting software, errors can occur.
Some Alternatives to Double-Entry Accounting
There is a simpler version of accounting. It is called single-entry accounting, which means that the cash system is run from a checkbook.
Having this approach, liabilities, and assets cannot be tracked, which further explains that no balance sheet can be made.
You should think about this approach if you have a small business and cannot afford to pay a bookkeeper.
What Is the Difference Between Single-Entry and Double-Entry?
As we previously mentioned, double-entry has two columns per transaction, and every single transaction is placed in two accounts: credit and debit. On the other hand, single-entry needs only one entry per transaction which can influence either expenses or revenue.
If you want to monitor multiple accounts, double-entry bookkeeping will allow you to do that.
This is very helpful if you need to manage a larger business. Because your business financial activities will appear in one place, the transactions will be easy to manage.
Let Professionals Help You
Now that you have all the important information, know that double-entry bookkeeping is a little bit complicated process. On the other hand, it can be a favorable form of bookkeeping to use for your company’s finances. Professional accountants are familiar with double-entry accounting and will easier navigate through your business books to sort it out.
If you need any help or have any questions about your bookkeeping, worry no more. You should think about hiring a professional accountant to help you with your finances, and here at Your Part Time Accountant, we are more than happy to offer any assistance.