Employees can also use double-entry bookkeeping to determine if the company has an excess cash flow. Double-entry bookkeeping allows employees to see all the money flowing in and out of a business, which makes it easier to detect potential problems or issues with cash flow. Staff can use double-entry bookkeeping to ensure that the proper capital is available by using it as a tool to monitor a company's financial health. For example, if there were no entries in the cash account for January, an employee might decide to check for other transactions that the business previously made in January but were not on a list in the ledger. Employers enter these transactions into a ledger and organise them by account type, which makes it easier for anyone to spot any errors/missing entries. They can do this by ensuring that every transaction entered into the system has a corresponding debit and credit. Related: 12 types of accountants and different areas of accountancy How can double-entry bookkeeping add value?ĭouble-entry bookkeeping serves several purposes by: Balancing all accountsĪccounting staff can use double-entry bookkeeping to balance business accounts. Quickly reference how much money each customer owes to the business Keep track of where the business made/lost profits so that managers can adjust their business model accordingly See at a glance if any accounts are over or under budget This method of record-keeping has many benefits for businesses, including the ability to:Įasily track how much money comes in versus how much money goes out This is because it means that every transaction records accurately and that there are no errors in any numbers.

Each time an accountant records a transaction, they're required to make sure that it appears on both sides of the ledger. The left side of the transaction, also known as the debit side, mirrors the right side, subsequently known as the credit side. What is double-entry accounting?ĭouble-entry accounting, or double-entry bookkeeping, is a system in which every transaction appears twice - once on the left side and once on the right. In this article, we look at what double-entry accounting is, how it adds value and how it differs from single-entry accounting. This helps businesses to keep track of their money and ensure that they don't spend more than they have.

It's called double-entry because each transaction has two sides and this accounting style ensures that businesses' properly record all transactions so they're easy to understand. You can easily check whether your bookkeeping is correct, because the balance in your bank account or cash register must match the balance in your bookkeeping after entries are posted.Double-entry accounting is a system that involves the recording of financial transactions and keeping track of them through debits and credits.

Clear, easy to follow bookkeeping helps you avoid problems, for example with the tax authorities.

You know what proportion of your business is financed by equity or debt.

The information gained from double-entry bookkeeping can be used to develop other key performance indicators that help you measure and increase your company's success: for example, cash-flow and liquidity.

It provides a large amount of useful additional information: for example, how much money your company has spent on specific things, the value of your stocks, and exactly how much money your company has on any given day.

Double-entry bookkeeping, on the other hand, is an important tool for a company's success. Simple bookkeeping (cash-basis accounting) can only show whether an account is running a profit or loss.

Double entry bookkeeping accounts