Seeing Double: Why You Need Double-Entry Bookkeeping

Your business is growing, which is good for your bottom line. It may not be good for your limited accounting staff, however. Especially if they’re not keeping accurate, double-entry books. Thankfully there is a lot of help out there for medium-to-large businesses that need assistance scaling up while keeping their books straight. 

Online bookkeepers can save the day when it comes to the fundamentals of business accounting, such as double-entry bookkeeping. This style of accounting is necessary for any growing company with both accounts payable and accounts receivable. Basically: every transaction is recorded twice. We’ll explain the principles of double-entry bookkeeping, how it differs from single-entry accounting, and why knowing more about double-entry matters for your business. 

What is double-entry bookkeeping?

Double-entry bookkeeping is a system where you are recording transactions in terms of debits and credits. Need a simple double-entry bookkeeping system example? Glad you asked. Imagine a spreadsheet with two columns, one for expenses and one for credits. Each transaction is recorded twice, once in the expenses and once in the credits, hence the name “double-entry.” If the columns don’t balance, you can investigate why the error exists.

Let’s say you have a corporate credit card with a balance of $5,000 that you want to pay off. Your company’s cash account would be reduced by $5,000; this is a debit/expense. At the same time, you would subtract $5,000 from the current debt held by the company, which is considered a credit. The transaction is recorded once in subtraction and once in addition, balancing the line items.

When do accountants use double-entry bookkeeping? Medium to large businesses, and even some small businesses, require this method to keep an accurate balance sheet. This style of bookkeeping also keeps your general ledger clean — this is a book that categorizes your financial transactions by type. You can also use double-entry when you create a trial balance, which is a simple spreadsheet with credit/debit columns that covers a specific time period. This document is meant to detect accounting errors, and double-entry helps you find discrepancies.  

Double-entry operates from the fundamental accounting equation: Assets = Liabilities + Equity. Once you add what you own against what you owe, you can understand whether you are in a surplus or deficit.

How is double-entry bookkeeping different than single-entry bookkeeping?

Single-entry bookkeeping only works for very small, very simple businesses. If you are bringing in cash with few expenses, such as with a sole proprietorship, this type of accounting may cover you. 

Single-entry methods are like keeping a chequing account. You only keep track of deductions or credits, creating a single entry for each transaction. Even if you had a credit/debit double-column spreadsheet, there would not be an entry in both columns for each transaction — with double-entry, there is. 

Should I use double-entry bookkeeping?

There are many advantages of a double-entry bookkeeping system. Here are some of the reasons we recommend switching to this type of accounting as a medium to large company:

• A more complete view of finances. Creating two entries for each transaction makes it easier to see where exactly the money that is going out as a payable ended up. A simple single-entry cash system isn’t complex enough for most businesses. 
• Finding errors is faster. Doubling down on entries also makes faster work of locating where a credit came in that was not properly debited, and vice versa. You will thank yourself later if you detect missing money.
• There is total transparency. By expecting a double-entry system from your accounting staff or partners, you keep everyone clear on where the money is coming and going. 

Conclusion

Bookkeeping can be a complicated business, and even double-entry bookkeeping isn’t foolproof. While double-entry accounting adds transparency and increased accuracy to the process — you may still need some help by way of a bookkeeping service. 

Visory has a team of financial experts that can lend their expertise whenever you need help balancing the books or preparing a trial balance brief. We’re better than an in-house accountant for growing businesses because you get access to a whole team and you can check your records around the clock. If it’s time to upgrade from single-entry to double-entry bookkeeping techniques, it’s definitely time to give us a call or create an account online today.