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Accurate bookkeeping is a vital part of owning and operating a successful business. Double-entry bookkeeping is the accounting method that ensures accuracy by providing a check and balance for each transaction.

While double-entry bookkeeping may sound foreign, you’re already doing it if you use QuickBooks or a bookkeeping service.

What is Double-Entry Bookkeeping?

Double-entry bookkeeping is a method where every financial transaction is recorded in at least two accounts. The double entry accounting system provides a way to check the accuracy and to ensure that all entries are balanced. It also makes it easy to look back and find where an error may have occurred.

For example, suppose your company takes out a loan for $5,000. In that case, the cash (asset) account is debited with $5,000, and the outstanding debt (liability) account is credited with $5,000.

DateCategoryAccount TypeExpense (Debit)Income (Credit)
29 AugLoanLiability5,000

Notice how the loan increases both cash and debt 👍

Record Twice, Balance Once

The fundamental accounting equation is Assets = Liabilities + Equity. The equation underscores the principle that a company’s financial resources (assets) are funded either by borrowing money (liabilities) or by investor contributions (equity).

  • Assets are the resources your business owns.
  • Liabilities are debts you or your company owe creditors.
  • Equity is the portion of business assets that are owned by shareholders.

In order for the equation to be balanced, the total assets must equal the total liabilities. Double-entry bookkeeping keeps the balance in check each time a transaction is recorded.

Differences of Single- and Double-Entry

Double-Entry Bookkeeping

Double-entry bookkeeping records transactions in at least two accounts, as a debit or credit, for every transaction. A double-entry system requires that the amounts recorded as debits equal those recorded as credits.

A debit represents an increase in assets or total value and a decrease in liabilities or money owed. In contrast, a credit represents a decrease in assets and an increase in liabilities.

Single-Entry Bookkeeping

Single Entry Example

On the flip side, single-entry bookkeeping records the transactions of a business with just a single entry. It does not track assets or liabilities, and is susceptible to errors. Think of a single-column in Excel with positive and negative numbers (there’s nothing to balance).

Do You Do Double-Entry?

That’s a funny sounding headline, right? Anyhow, double-entry accounting is used by businesses of all sizes and in all industries. One important reason is that it is the only bookkeeping method that adheres to GAAP (Generally Accepted Accounting Principles) in the United States.

So, whether it’s a small or a large business using cash or accrual accounting, double-entry bookkeeping can be used since it provides a clear picture of income and expenses.

Double-Entry Bookkeeping Software

All modern accounting software, such as QuickBooks or Wave, relies on double-entry bookkeeping to keep your accounts balanced. While bookkeeping software has mostly merged debit and credit into a single-column format on the main dashboards, you can still find it if you run reports like a trial balance or view your general ledger.

Virtual bookkeeping combines the best parts of traditional bookkeeping and accounting software to give you an affordable way to outsource your bookkeeping duties.

Transaction Account Categories & Types

Double-entry accounting is generally classified as having at least two accounts in the accounting process. Business transactions are classified into a category in one of the five main types of accounts:

1. Asset Account

These accounts place a monetary value on the company’s items that provide economic value and future benefit. Asset accounts include:

  • Inventory
  • Cash
  • Accounts Receivable

2. Liability Account

These accounts contain information about expenses that have yet to be paid. A few examples include:

  • Accounts Payable
  • Taxes Payable
  • Notes Payable

3. Equity

Equity refers to the company’s capital or ownership. Some examples of equity include:

  • Retained Earnings
  • Common Stock
  • Treasury Stock

4. Income Account

These accounts track the company’s or its assets’ revenue. Common examples of income accounts consist of:

  • Gain on Asset Sales
  • Sales Revenue
  • Interest Income

5. Expense Account

These accounts detail the expenses incurred by the company. A few common examples of expense account categories include:

  • Utilities
  • Advertising
  • Rent

Final Word on Double-Entry Bookkeeping

Taking your business to the next level and ensuring its long term success is only possible if you have an accurate picture of the finances in your operations.

Double-entry bookkeeping is essential for accurate accounting. Accounting software and bookkeeping services are the two easiest ways to get started (and you’re probably are doing it already).

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