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There are many accounting terms that only accountants sharing the same language understand. But what exactly is double entry accounting? Although this term applies to accounting alone, the mention of double entry makes it quite self-explanatory. Nevertheless, it is a good thing to know what double entry means in the awesome world of numbers.
Doubly entry was a common practice among merchants in Venice during the 15th century but it was never named nor identified as such. The first person who was able to define double entry was Franciscan Friar Luca Paciolo. It was credited to him as one who wrote about it and named it as double entry accounting.
Also known as double entry bookkeeping, it is a standard method of bookkeeping that relies on a two-sided accounting entry to keep up with any financial information and keeps a company’s accounts balanced.
Essentially, it requires recording each financial transaction in at least two accounts, resulting in a debit to one or more accounts and a credit to one or more accounts. Debit and Credit are the two book entries in double entry accounting – very vital in every transaction within a business.
As compared to single-entry accounting that traces and tracks revenue and expenses, double-entry monitors assets, liabilities and also equity. The recording of two entries may seem to be tedious but this gives a clear picture of what comes in and out of the business.
Today, doing doubly entry is no longer daunting since a bookkeeping software makes all these possible, doing debit and credit entries all behind the scene, with just a push of a button. As the scale of the business grows, double entry accounting is the most dependable and efficient approach for a company to monitor and evaluate its financial growth.
For you to have a better grasp of double-entry accounting and how it functions, here is an example. If you were going to jot down sales revenue of P500,000, you would need to fill up and make two entries: a debit of P500,000 to add up the balance sheet account called ‘Cash’ and a credit entry of P500,000 to increase the income statement called ‘Revenue’. Another example might be the purchase of a brand-new laptop for P35,000. You would have to enter a debit of P35,000 to increase your income statement with the said Capex account and a corresponding P35,000 credit to decrease your balance sheet Cash account. To further illustrate:
The double-entry system entails a chart of accounts where the accountants make entries. This contains the balance sheets and income accounts and for some, they customize showing the company’s operations. The use of several types of accounts is important and is noteworthy to also know these account types as part of double entry accounting.
Nowadays, companies have embraced technology to keep up with the changing times. The use of a bookkeeping software that is cloud based and is able to do double entry is more than you can ask for. Without this feature, an accountant would have difficulty tracking financial information such as inventory, accounts payable as well as the preparation of year-end tax reports required by the Bureau of Internal Revenue.
When setting up a bookkeeping software, a company would try to configure its accounts chart to show the actual accounts already being used. Most often, bookkeeping software usually gives varied types of financial and accounting reports on top of the usual balance sheet, income statement and statement of cash flow. The trial balance lists each and every account in the ledger and it tags all of the accounts that have a normal debit balance and those with normal credit balance. The grand total of the trial balance should always be ZERO and the total debits should be exactly equal to the total credits.
Do you already have a cloud-based bookkeeping software or perhaps not happy on what you currently have? If you have one, and you are not certain whether your bookkeeping software is double-entry, check out if there is a balance sheet. If you are able to produce a balance sheet from your bookkeeping software without having to enter any information other than the date of the report, then you will know that you are using a double entry accounting system.
Or are you still doing manual and considering to shift to a bookkeeping software that is cloud-based? Well, here is one irresistible suggestion. Consider EasyFS. It is an automated bookkeeping software that is cloud based and has automatic double entry accounting. Debit and credit entries are inputted and voila, it balances automatically.
Best of all, it is cloud-based and can be accessed anywhere and anytime with a plethora of languages (multilingual) and not limited to only one currency but can also trade in various currencies as well as BIR compliant.
EasyFS is a perfect bookkeeping software, cloud-based, user-friendly and inexpensive, just right for your budget. It can do wonders for you and your business.
For more information, check out: Human Incubator at +63-32-256-2904 or +639088601619 or send us your inquiry by filling-in this form here.