What is Double-Entry Bookkeeping?

If bookkeeping is a tedious task, double-entry bookkeeping involves more work. Before we go into the details of this accounting concept, let’s first discuss the basics.

What is bookkeeping?

Bookkeeping refers to the task of recording all of a company’s financial transactions. It’s very systematic and entails the organisation of a company’s financial obligations. It involves the accurate recording of day to day expenses. Every purchase or sale is carefully recorded. 

Bookkeeping is an essential part of a business’ growth. It provides all the financial information that pertains to a business. An impeccable record of all financial transactions can help a company improve its cash flow. Moreover, one will be able to immediately see any money leak and alleviate the situation before it worsens.

Why double-entry bookkeeping is better

Double-entry bookkeeping involves managing two accounts. The principle behind it is that for every debit, there is a corresponding credit. It carefully records both aspects of the company’s financial transactions. 

Did you know that this is one of the toughest areas in accounting? The positive side is that it can result in better financial reporting. Moreover, any fraudulent activities that involve the company’s cash flow are significantly reduced with this system.

Why do you need to know double-entry bookkeeping when the transactions are processed using accounting software? If you do not understand how double-entry bookkeeping works, the transactions will be posted to the wrong accounts, this may create so many incorrect transactions that the file is useless and the information is incorrect. 

bookkeeper at work explaining double entry bookkeeping

What makes it more effective than single-entry bookkeeping?

Double-entry bookkeeping makes use of the principle of “matching”. Both the company’s revenue and expenses are carefully recorded and accounted for. Owners can clearly see how much profit was gained or if there are any losses. 

From there, it will be clearer what services/products are making money and where the money is going. Since there is entry adjustment in the process, double-entry bookkeeping can provide more accurate data by the end of the fiscal year and provide the accountant with an accurate set of accounts to use for the end of financial year reports and tax return.

Conclusion

Companies using accounting software need bookkeepers who understand double-entry bookkeeping. The checks and balances can greatly reduce errors. Moreover, the debt must match the credit using this technique – leaving almost no room for mistakes.
To know more in detail and understand how we help businesses with their bookkeeping in Mandurah, get in touch with Additional Business Concepts today. Call (08) 9565-9906