What Is Double Entry Bookkeeping? Simple Explanation for Small Business
Every business owner needs basic accounting knowledge to run their business better. You must be able to record transactions and finances. In general, the types of recording are divided into two, namely single entry and double entry. However, in the last few decades double entry bookkeeping has been used as a standard of financial recording in various large and small companies.
If you are a business owner and are new to the basic accounting system of double entry bookkeeping, continue reading for a brief explanation that will be useful for your business!
Definition of Double Entry Bookkeeping
As the name implies, The definition of double entry bookkeeping is the process of recording financial transactions using a system that ensures each transaction is recorded in at least two accounts. This system helps business owners track their financial progress and make sure their books are in order. Each transaction is recorded in a journal entry that affects two accounts, one debited and one credited.
To understand this concept in a simple way, imagine that you shop at a store and pay with a card or money, then you get the goods. On the store’s side, from your purchase, they will get two changes. Their cash increases and their inventory decreases. In double entry bookkeeping, a journal entry will be recorded where the cash account is debited, and the inventory is credited.
Double Entry Bookkeeping is Important For Businesses
As a business owner, you want your business to keep running smoothly and not be burdened with complicated miscalculations. Double Entry Bookkeeping is perfect for those of you who don’t want to deal with that problem, learn more about the importance of double entry for a successful business!
1. Detailed financial overview
Double entry bookkeeping will give you a clear view of the money coming in and going out. Everything will be recorded through systematic techniques that can track every aspect of the transaction. Double Entry Bookkeeping will allow you to gather information on profits and losses, cash flow, and track outstanding debts.
2. Minimize calculation errors
Errors are easy to spot when using double entry bookkeeping, especially if you’re using software to calculate, as the system will show that there’s an imbalance between debits and credits. You can correct it immediately without having to start calculating all over again.
3. Increase customer trust
Every business owner wants consumer confidence, especially for small businesses that are just starting out. In fact, using Double Entry Bookkeeping will increase consumer confidence because accurate and transparent financial reports add a layer of accountability to your business.
Customers will see you as more trustworthy, banks will be more willing to lend, and investors will be more open to funding.
Conclusion
Maybe after reading this article you will make up your mind to change your bookkeeping method to Double Entry Bookkeeping. It is the right choice for that, because of the many benefits you can get. Double Entry Bookkeeping will make your financial calculations more transparent and can minimize calculation errors, and the bonus is that your customers will increase and no longer need to spend a lot of time if you use software assistance.
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