Bookkeeping Basics #4
What is Double Entry Bookkeeping?
In order to explain the concept of "double entry bookkeeping”, let’s first address the question: what is bookkeeping?
In simple terms, small business bookkeeping & general bookkeeping involves organising all of your financial record-keeping to ensure that you are given a consistent insight into the financial position of your business. This continuous data entry and tracking is often referred to as the tedious, boring stuff! That’s why bookkeeping services can be a timesaver and asset to your business.
So, what is double entry bookkeeping?
The double entry system means that each financial transaction of a company is recorded with an entry into at least two of its general ledger accounts.
For example, if a company borrows $5,000 from the bank, the company's asset account is increased with a debit entry of $5,000 and the company's liability account is increased with a credit entry of $5,000. If the company then repays $2,000 to the bank, the company will decrease the amount in its asset account with a credit entry of $2,000 and will reduce the balance in its liability account with a debit entry of $2,000.
Double entry bookkeeping requires that the debit amounts must always equal the credit amounts. Every account has two "sides". A debit refers to an entry on the left side of an account, and a credit refers to an entry on the right side of an account. Double entry bookkeeping requires that for every transaction, there is an entry to the left side of one account, and a corresponding entry to the right side of another account. Every debit must be matched with a credit!
Today’s bookkeeping software often has double entry bookkeeping programmed into it. Examples of commonly used bookkeeping software include MYOB bookkeeping, Xero bookkeeping & Xero cashbook. Although this software has been built for convenience and ease, it’s still very important to ensure that everything is entered into the software precisely and correctly to avoid error. Your bookkeeper can practice the double entry bookkeeping system to ensure absolute accuracy.
Bookkeeping services can also include organising payroll, superannuation, data entry, and to prepare & lodge BAS; whatever your business might need to run smoothly and successfully. The benefits of small business bookkeeping is that you have the expertise of knowledge, consistency of data entry, ongoing back-up support and only one invoice to pay each month!
One of the main goals of our Bookkeeping Basics Blog is to support small business! We understand that despite the associated rewards, the running of a business can be extremely stressful and time-consuming to say the least. Our aim is to free up some spare time by taking care of the numbers and paperwork (all the fiddly little parts of running a business - often referred to as "the boring stuff”!)
If you think your business might benefit from bookkeeping services, please don’t hesitate to get in touch; we’ll discuss your business needs and tailor a package that is right for you and your business.
- The Shoebox Team
"Empowering Business Owners to Realise their Business Dreams”