We all know that managing your finances is the absolute cornerstone of your business’s success. That’s what makes it so important to understand one of the most effective approaches to fiscal management starts with understanding exactly what is a double-entry bookkeeping system. This accounting method includes a lot more than some simple record-keeping. Your double-entry bookkeeping system is one of the most reliable ways to be sure that your fiscal records are always coming out balanced, accurate, and transparent.
That’s why today, we’re jumping into the details of what a double-entry bookkeeping system is, how it works, and what makes it such an integral asset for small businesses.
Let’s get started!
What is Double-Entry Bookkeeping?
Fundamentally speaking, when we’re answering the question “What is a double-entry bookkeeping system?’, it’s pretty simple. It’s a method that allows for every financial transaction to be recorded in two separate accounts. Essentially, one account is labeled debit while the other is credit. That way, you can count on all of your accounts remaining balanced and maintaining the rudimentary equation of accounting. It’ll go a little something like this:
Assets=Liabilities+Equity
Think about it like this: Let’s say you buy $8,000 worth of inventory for your brand. If you’re using a double-entry bookkeeping system. Your entry will look something like this:
- Debit: Inventory increases by $8,000
- Credit: Cash decreases by $8,000
This is a two-sided approach that makes it very clear where your money is coming from and exactly where it’s going. In that way, you’re able to mitigate errors and elevate the transparency of your record-keeping. On the other hand, single-entry bookkeeping records all of your transactions just one time. This approach gives you a very finite view of what your fiscal relations are looking like. The comprehensive nature of a double-entry bookkeeping system makes it a pretty easy choice if you’re the owner of a small business that wants to scale while maintaining accuracy.
How the Dual-Entry Accounting System Works
The dual-entry accounting system is a very concise but powerful approach to accounting. You simply have to live by this rule of thumb: All of your transactions will affect two accounts. Let’s get into a comprehensive breakdown of exactly how it functions:
Identify the Accounts Involved
Example: Your brand earns $10,000 from a client
Classify the Transactions
Debit: Cash account increases by $10,000.
Credit: Revenue account increases by $10,000
Record Both Entries
Through the recording of both entries, you’re able to generate a balanced ledger that guarantees that the sum of debits equals the sum of credits.
When you utilize a dual-entry accounting system, all of your financial activity is accurately documented. This is a level of detail that is integral if you want to make it your business to prepare accurate fiscal statements and track the financial health of your brand.
Benefits of Double-Entry Bookkeeping for Small Businesses
Now that we have the answer to “What is a double-entry bookkeeping system?”, we now can get into some of the benefits of implementing the efficient approach into your business. Here are some of our favorites:
Enhanced Accuracy
When you utilize the double-entry bookkeeping system, you’re taking an active step to mitigate the risk of errors through the recording of every transaction in two separate places. That way, your mistakes will be a lot easier to spot and your accounts will stay balanced.
Clear Financial Insights
You’ll be working with a detailed ledger, so you can count on a clearer understanding of all of your assets, liabilities, and equity. This is a clarity that will support your decision-making and budgeting.
Scalability
Small businesses usually grow out of their simple needs and methods. The more you scale, the more you will need your accounting methods to grow with you. Luckily, the double-entry bookkeeping system does just that. As you grow, your system will grow with you.
Improved Financial Reporting
This is a system that will help you craft detailed fiscal statements. Pulling your balanced sheets and income statements will be less of a hassle! You can count on it being easier to secure loans, get investors, and plan for your future.
How Estess CPAs Can Help
It’s no secret that the Estess CPA team prioritizes helping small businesses all across New Orleans consolidate their fiscal management. It doesn’t matter if you’re new to the dual-entry accounting system or simply looking to elevate your current operations, Estess CPAs has you covered all the way.
When you partner with Estess CPAs, you are partnering with excellence, convenience, and top-notch financial solutions. Don’t spend your day cranking out your double-entry bookkeeping tasks. The Estess team can help. Click here to get in touch with our experts, and we’ll have you well on your way to a financially prosperous tomorrow in no time.
Let us handle the numbers.
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