An Overview of Double Entry Bookkeeping

double entry bookkeeping

Double-entry bookkeeping is an accounting system in which transactions are equally recorded in two or more than two accounts. You have to make a debit entry in one account and a credit entry in another. For example, if a business takes a loan of £3000, you’d credit the assets to £3000 and debit the liability by £3000. As the amount is an increase in asset and outstanding debt simultaneously.

 

What is Double-Entry Bookkeeping?

It is an accounting method where you record transactions equally in two or more accounts. This method states that every business transaction has an opposite and equal effect on at least two accounts. Both debit and credit must balance, which ensures that both need to account for the total transaction value.

 

For instance, if you buy a smartphone for £1000. You will need to credit £1000 as a technology expense account and at the same time, you need to debit £1000 on a cash account. As you have a new gadget now with a value of £1000 and your cash has been decreased to £1000.

 

As debt increases assets and expenses and decreases equity and liability. The credit decreases assets or expenses and increases liability and equity.

 

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Benefits of Double-entry Bookkeeping:

Double-entry bookkeeping is beneficial for you to:

double entry accounting

  • Take better financial decisions
  • Find out and rectify the bookkeeping errors
  • See a clear picture of the company’s financial status
  • Maintain accurate accounting records

 

Accounting Equation of Double Entry Bookkeeping:

As a basic principle of accounting, both sides need to be equal. If they’re not equal, it means there is an accounting error that needs to be corrected.

 

Assets = Liabilities + Equity

 

So, whenever there is an increase in the assets, your liabilities are also going to increase.

 

Key Account Types:

There are several account types that are used while doing double-entry accounting. Here is the list of key account types:

  • Asset accounts
  • Liability accounts
  • Income accounts
  • Expense accounts

 

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Who Employ Double-entry Bookkeeping?

Generally, public companies use this according to the generally accepted accounting principles (GAAP) with the decision of the Financial Accounting Standards Board (FASB). We suggest small businesses to use double-entry bookkeeping for accuracy and to keep track of the financial status of a company and its growth.

 

How to do Double-entry Bookkeeping?

You can do this by using accounting software that will help you automatically create custom accounts like technology accounts, etc. You can link it with your bank account to make the recording process easier. Reports by accounting software will make you ready for tax purposes and year-end accounting.

 

If you’re busy or unable to do it, you can get professional help from our accountant. Feel free to reach out!

 

Quick Wrap Up:

Due to the transparency and efficacy of double-entry accounting, this method is preferred by bank, investors, and financial institutions. It provides them with a clear view of the financial status of your business. So, we advise you to do double-entry accounting to grow your business.

 

If you’re looking for an affordable option, we have a team of bookkeepers and accountants to do double-entry accounting or bookkeeping for you! Get an instant quote right now!

 

Disclaimer: This blog post provides a general overview of double-entry accounting.