7 Advantages of Double Entry Bookkeeping

In the world of accounting, there are two different systems commonly used by businesses, large and small, to record financial transactions. They are single-entry and double-entry accounting. Both systems “get the job done”, but it’s up to your personal preference. However, unless you are a small business with simple transactions, double-entry bookkeeping will be the most beneficial to you and your business finances.

Single-entry bookkeeping is similar to a checkbook register where only a single-line transaction is recorded, reflecting the credit or debit of cash. This simple way of keeping track of your money is less expensive and can be maintained in less time and with less effort. Single-entry accounting only takes into account records for cash, accounts receivable, accounts payable, and taxes paid. More detailed records such as assets, liabilities, inventory, expenses, and income are not kept, leading to misrepresentation of your financial records. This is where double-entry bookkeeping comes into play.

Double-entry bookkeeping, which has been around since the 15th century and is the basis of generally accepted accounting principles, is a bit more complicated. Instead of a single transaction in a column, double entry makes two entries for each transaction. A credit entry is made for the income contributed to the company and a debit entry is made for each transaction paid. In the end, these two inputs will offset each other so that both sides add to zero. With this in mind, double-entry bookkeeping offers the following advantages over single-entry bookkeeping:

1. A check against accounting error, including theft, is automatically provided when transactions are posted and the total amount of debit entries equals the total amount of credit entries.

2. The preparation of financial statements can be created with ease due to the accurate and continuous calculation of profit (credit) and loss (debit).

3. With both entries recorded (sales and purchases) you can track who owes the company money and who the company owes money more easily.

4. The company’s financial situation is clearly illustrated and can be quickly accessed for effective business planning.

5. With a higher degree of entries required, double-entry bookkeeping takes a strict approach to creating detailed records of all assets so your business doesn’t lose track of any income.

6. Double-entry bookkeeping takes into account internal transactions, such as entry adjustment, which provides more accurate information at the end of the fiscal year.

7. Omitting important data is never a problem because each transaction is recorded twice in two separate columns.

Although the benefits have been greatly reduced due to the introduction of computerized systems, double-entry bookkeeping will continue to be more practical when it comes to detecting fraud and errors. Whether you’re a one-entry or a two-entry bookkeeper, as long as you keep your financial records right, you continue to crunch those numbers and get the results you want.