The Complete Guide to Double Entry Bookkeeping [2023]
While maintaining bookkeeping, it is very important to follow proper guidelines of accounting principles.
Every financial transaction done in the journal affects two general ledgers of the company.
If you are just a beginner in accounting or do not know about it then you obviously must be curious about how one financial transaction affects two accounts by Double Entry Accounting.
Well, you will get to know in more detail about this here along with double entry bookkeeping, a proper solution for this.
It easily removes all the hassles that used to happen in the earlier Single-Entry Bookkeeping and a new era of Double Entry Accounting.
The double-entry bookkeeping system is now being used by almost all companies around the world.
What is Double-Entry Bookkeeping?
In double-entry bookkeeping, the financial transactions affect at least two accounts.
Here, whenever a debit entry is made in one account, a corresponding credit entry is in one or more accounts.
It considerably reduces the possibility of errors and increases accounting efficiency.
Who can use a Double-Entry Bookkeeping System?
This Double-Entry Bookkeeping System can be used by companies of all sizes across all types of industries.
It complies with the Generally Accepted Accounting Principles (GAAP) principles Companies that want to maintain proper financial records and statements must use double-entry bookkeeping.
It improves the accounting quality to give better financial reports.
What are the rules for a Double-Entry Bookkeeping System?
There are three major rules while doing the bookkeeping activity as per this Double-Entry Bookkeeping System.
These rules are:
- Every business transaction must be recorded in at least two accounting books.
- The total number of debits recorded must be equal to the total number of credits recorded.
- Total equity plus total liabilities must be equal to the total assets of the business.
How does Double-Entry Bookkeeping work?
The double entry bookkeeping is generally used to reflect the proper financial position of the company.
It is done to ensure that the accounts of the company remain balanced.
Accountants use credits and debits to keep the equation balanced.
Here, debits are recorded on the left side of the ledger and credits on the right side.
Single Entry vs Double Entry Accounting
– Single Entry is easy to implement, while double entry would involve a little bit of effort.
– There is a high possibility of duplications and omissions causing more errors in a Single Entry, while there are no chances of these types of errors in double-entry accounting.
– Single Entry only records the cash inflows and cash outflows of the business, Double entry can show both along with sales and overall financial view.
– Single Entry Accounting is not accepted under GAAP, while double-entry accounting is accepted under GAAP.
Basics of Double-Entry Bookkeeping:
1. Accounting equation
The accounting equation here is based on three major entities, which are liabilities, assets, and owner’s equity.
Equation: Assets = Liabilities + Equity.
2. Debits and Credits
Debits and credits are the two opposing entries made in two different accounting books.
3. Types of accounts
The 5 most common types of accounts here are
- Expenses
- Assets
- Liabilities
- Equity
- Revenue
Final Thoughts
This is a short guide on the double-entry bookkeeping system which has eased the bookkeeping activity. This system can be easily implemented by all types of businesses.
If you need quality double-entry bookkeeping for your business then you can outsource this task to Meru Accounting.
They have experience working with different companies with this system properly. They have experts working on accounting software.
Meru Accounting is a proficient accounting service-providing company around the world.
