A common misconception we hear about double-entry bookkeeping is that it is like single-entry except that it's copied down twice for accuracy. Although double-entry does contribute to accuracy in a general ledger, it does not mean you're making two copies of a single entry. Double-entry is a method in which every transaction has an entry in two accounts; one account is credited while another is debited.
For example, if a company receives a loan from a bank, the assets (property) are increased in conjunction with liability (loan). This type of bookkeeping system makes it easy to develop profit and loss reports and analyze balance sheet reports at a moment's notice.
In the world of double-entry bookkeeping, the methodology might seem cumbersome at first, but if you're using accounting software, you'll wonder why you went so long without it.
Ease of Use
Hesitancy keeps the small business owner from entering the seemingly perilous world of double-entry bookkeeping. The educational process alone tends to deter small business owners from familiarizing themselves with this complex and mathematical language.
Luckily, the proper accounting software mitigates this hassle. Since computerized accounting software can reconcile credits and debits to maintain a general ledger, your job primarily consists of entering the correct data in the appropriate accounts. For example, a business expense would need to be categorized in the appropriate expense account and marked as a decreased credit. On top of that, you would need to note the method of payment and mark it down as an increased debit.
Many assume that double-entry bookkeeping ends up taking more time since you have to update two entries for every transaction. Fortunately, modern accounting software for double-entry bookkeeping can allay your fears of having to hire extra help just to deal with this seemingly time-consuming process.
Choosing any online double entry bookkeeping application allows you to enter only one side of the transaction process while the accounting software automatically updates the other end of the process. Not only that but it allows you to work from any computer with internet access. This facilitates collaboration by storing all of your data remotely on secure servers.
With minimal experience in double-entry bookkeeping you could feel like trying to climb Everest without a sherpa. One simple mistake along the way can ruin the entire books.
Accounting software automatically updates each credit and debit account with every transaction. The only thing you need to worry about is entering the correct amount. You can produce accurate balance sheets and financial reports to accurately assess your profits and losses.
When you think of double-entry bookkeeping, you're probably thinking double the work. You may think that with so many ledger books to keep track of, of course, you'll need extra help.
With the advent of cloud-based accounting systems, you won't have to break the bank to receive quality accounting software. You can either join through a budget-friendly subscription-based service or purchase standalone desktop software if you feel more comfortable with that. Double-entry also allows you to transfer your sales totals to tax forms at the end of the year, saving you even more money when tax season comes along.