Double entry bookkeeping is based on the principal of recording all transactions twice, once as a debit and once as a credit. It serves as a balancing act so to speak as well as an internal checkup. When working with double entry, many data management systems won’t let you proceed if a matching debit is not recorded, thus minimizing errors when it comes to your financial statements.
For example, you pay ABC Company for some inventory. The cash will be credited and the accounts payable would be debited. It’s that simple. However, if you would like more details then take 2 minutes and 59 seconds to check out this video.
The advantages of double entry bookkeeping are that it is very thorough in the sense that it paints a clear picture of where your business stands, and being that it is an accounting method, it can lower accountant fees as it is much easier to produce the year end accounts.
A disadvantage is that is can be complicated if you are not familiar with the process and thus it will take a bit of getting used to. However, this goes with learning any data management/bookkeeping system and I encourage small business owners to know how to use their bookkeeping system inside and out as they are such a vital part of the business.
Now although double entry bookkeeping does serve a very useful purpose, don’t discard single entry bookkeeping as it too does a great job. Depending on your business, you many only need a single entry system. It all depends on who you are. In any case, whether you use double entry bookkeeping or single entry bookkeeping, make sure it works for you and your business. The most important thing to take away here is that your bookkeeping system should make life easier when remitting your payments, submitting payroll, analysing your business and preparing for tax time.
If you have any questions or concerns about your current entry system, leave your contact details in the comments section below and we will gladly give you a complimentary analysis.