Double Entry Bookkeeping dates back to Venice, 1494. As it’s name suggests, it means that every transaction is entered twice into the “books” of a business. Once as a debit and once as a credit. (How this works in detail will be the subject of a later post)
- It provides a specific means of dealing with opening and closing balances (at the start and end of the year)
- It provides an arithmetic check on your bookkeeping, since the total amount of debit entries must equal the total amount of credit entries. (There’s something fundamentally wrong if this isn’t the case)
- Using a Sales Ledger and Purchase Ledger means you can track who owes the business money and who the business owes money to much more easily. (However, it is possible to operate a simple sales ledger and purchase ledger using single entry)
- You can see the financial position of the business much more clearly, at any given time, using double entry.
- Done properly, it can help detect and reduce accounting errors.
- Double Entry bookkeeping makes producing the year end accounts easier. If you use an accountant to produce your year-end accounts, having good double-entry records may lower your accountancy fees.