Before you venture into any business there are certain things you need to consider to grow it in future. Accounting is one of them because a proper management of accounting books is what helps in sky rocking the business. However, you have to make a decision on system of accounting you will be choosing. Let me tell you that there are two types of accounting systems available: single-entry and double-entry.
And here in this guide, I’ll be talking about double-entry accounting specifically. Why only double-entry and not single-entry accounting is because double-entry accounting helps track your finances particularly. If you’re unaware of it, read on to know below.
I’m going to start from scratch.
What do you mean by double-entry accounting?
In simple words, double-entry accounting is the method of bookkeeping. It works as a tracking system through which you can track where your money comes from and goes out. So you’re able to equally record a transaction in two or more accounts. Moreover, double-entry bookkeeping method is based on the idea that every business transaction has equal and opposite effects on at least two accounts.
Here read how double-entry bookkeeping helps you with:
- – Helps you make better financial decision
- – Maintain accurate finance or accounting records of your business
- – Reduce bookkeeping errors of your company
- – Helps you make clear picture of company finances
There would be many more things through which double-entry bookkeeping can help you with.
How to utilize double-entry accounting?
No doubt, double-entry accounting may seem little intimidating at first. That’s where you need little practice to work on this system to keep accurate records of business finances. Basically, each time you record a transaction with double-entry bookkeeping, you have to create two entries.
So when you create two entries, you have to determine which account is affected and how debit and credit affects them. It’s every crucial to ask questions whenever you record a new transaction. Below listed are certain questions which you should ask yourself:
- – Which account is affected by entry?
- – Should I use debit or credit?
- – Is my account increasing or decreasing?
Once you’re done with making all the entries of your transactions, ensure that your books are balanced.
Let’s now dig deeper and talk about the benefits of double-entry accounting.
Advantages of double-entry bookkeeping
The first benefit of double-entry bookkeeping is prevention of errors made in accounting books. Human tend to make mistakes which can spoil the company’s finance right. With double-entry accounting, you reduce the chance of that as it provides checks and balances. You can easily catch errors through double-entry bookkeeping. Let me tell you that errors are reduced to some extent but not entirely eradicated.
Preparing financial statement
Financial statement is crucial for any accounting firm to manage accounting books. That’s where double-entry bookkeeping method helps companies prepare financial statement of the business. No wonder, you can quickly produce accurate financial statement with full efficiency. In fact, external users of the company like investors depend on financial statement to view a company’s finances.
Accuracy of accounting statement
Another benefit you get from double-entry bookkeeping is accuracy you get to maintain in recording accounting statement. It also maintains the matching principle which makes sure that expenses relating to revenue. Recording both of them will help you record profit and loss statement accurately.
Helps Company’s manager
Yes, double-entry accounting method helps company’s manager take wise decision on the basis of the financial condition of the business and make plans accordingly. Even if you get stuck in any business plan in middle then this double-entry bookkeeping will help you a lot. Make sure to take a wise decision. Many accounting firms providing virtual accounting services in San Diego also make use of double-entry bookkeeping to make wise decisions of the company.
When the question comes whether to use double-entry bookkeeping or not then one should not get second thought to use it. Today, using double-entry bookkeeping will provide more complete, accurate, and efficient detail of business accounting and finances. Moreover, it also decreases the risk of bookkeeping errors, enhance the transparency of your finances, and add a layer of protection to your company’s finances. I hope you found this article informative.
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