An overview of double entry bookkeeping system
Double-entry bookkeeping is a system of accountancy which involves simultaneous debit and credit entries for every business transaction. This bookkeeping system is based on the accounting principle that debits are equal to credits. In case, the debit and credit statements don’t match then there must be an error in the statements. The various pros and cons of double entry bookkeeping have been discussed in this blog.
- The opening and closing balances at the start and end of every year are mentioned in this bookkeeping system. So you can easily calculate the profits or losses incurred during that year.
- The debtors and the creditors of the business can be easily recognized by going through the sales ledger and purchase ledger.
- The various errors related to accounting can be easily documented in this bookkeeping system.
- By having access to double entry bookkeeping system, you can easily derive the financial position of your business.
- This bookkeeping system is ideal for large business enterprises as it enables proper planning and utilization of business finances.
- This system of bookkeeping is much more costly as it requires the services of a person with good knowledge of accounting. You will either have to hire someone or outsource the work to another organization. If a business entrepreneur wants to perform the double entry bookkeeping himself, then he will have to learn it.
- This method of bookkeeping is much more time consuming in comparison to single entry bookkeeping. You have to enter every business transaction twice in this bookkeeping system.
The double entry bookkeeping system is extremely accurate and is ideal for keeping the financial records and evaluating the profitability of a business venture.