DOUBLE-ENTRY BOOKKEEPING DEFINITION
Double-entry bookkeeping, or double bookkeeping, is one of the fundamental principles of accounting, and it tells us that every financial transaction has effects as both an asset and a liability. Therefore, every transaction of a business must be recorded twice, in two separate places. The accounting equation that double-entry satisfies is: Assets = Liabilities + Equity. In the double-entry bookkeeping system, all financial transactions are recorded in terms of debits and credits.
For a clearer example, let’s say that you take a $10,000 loan. You would record $10,000 in the assets account and $10,000 in the liability account. The $10,000 cash is an asset, but the $10,000 in debt is a liability. As a rule of thumb, when it comes to the double-entry bookkeeping system, total assets must equal total liabilities, plus equity. But, if this seems too much for you, don’t worry because ProLedge is here to help!
ACCOUNTS USED IN DOUBLE ENTRY
There are five main categories in the nominal ledger when talking about double-entry bookkeeping for a business. They are used to record and organize the financial transactions of your business. They help with maintaining accuracy in your financial records.
This category in the double-entry bookkeeping system refers to all of the resources owned by the business. There are a few things that enter this category, especially: cash, property, accounts receivable, vehicles, equipment and investments. When assets increase, they are debited. When they decrease, they are credited.
A liability is basically debt owed by the business to external parties. This could mean paying back a loan, accounts payable, taxes, unearned revenues, and accrued expenses. The situation is opposite with liabilities, because when they increase, they are credited; and when they decrease, they are debited.
The owner’s capital, common stock and retained earnings are a part of the equity category. It’s essential to know that investments by the owner increase equity and are credited. Equity increases with profits which come from revenue minus expenses.
Income, or revenue, is the money earned by a business through its main activity. Therefore, sales revenue, service income and royalties are part of this category. One of the key points here is that revenue increases equity, and it’s always credited. Income is essential in the double-entry system.
The expenses are the costs used to help the business operate. The utilities, the rent, the salaries, even the supplies and insurance are counted as expenses. They increase the equity, which means that they are debited. The ‘expenses’ category is a must in any bookkeeping system.
The ProLedge team is ready and able to answer any questions regarding the services that we offer, besides double entry. You can contact us anytime, and we will make sure to accommodate your business. We are available for both online meetings and calls.
A BOOKKEEPING LEDGER
A double entry ledger is the book of the financial accounts of a business. It is the backbone of any accounting done for a business, and the core of the double-entry system. There are three main accounts in the double-entry journal, each with a different purpose.
THE BENEFITS
Double-entry bookkeeping is a principle that has a lot of benefits for businesses. No matter the size of your business, you can benefit from using the double-entry bookkeeping system.
WHY WORK WITH PROLEDGE?
Professionalism should be a part of every bookkeeping system. We always make sure that the needs of a business are taken into consideration throughout the whole partnership. We aim to offer high-quality advice for all businesses that choose to work with us. Our professionalism can be seen in our respect for you and your business, and by the fact that we will always deliver what you paid for.
Only double-entry experts are part of the ProLedge team. We have been in the industry for over 20 years and have had many successful collaborations. With the high level of knowledge and skills that we have, we can help with the books of your business.
Passion is one of the elements that makes the difference between a good and a great double-entry system. The people in the ProLedge team are passionate about double-entry bookkeeping, and about finding the best option for all businesses. Passion is the fuel for motivation and innovation, which is what we’ll bring to your life.
WHERE TO FIND PROLEDGE
Even though we offer online consultation too, if you live in Texas, you can visit us at one of our offices. We handle businesses all across the US, but the main cities where you can find us are:
OUR SERVICES
Besides the double-entry method, we offer a series of services that all businesses could benefit from. Let’s see what these services are!
THE DOUBLE-ENTRY BOOKKEEPING SOFTWARE PROLEDGE USES
QuickBooks is your digital general ledger! It’s an accounting software for businesses of all sizes, but especially small and medium. It offers a lot of tools that allow you to take care of the financial situation of your business, including double-entry. Everything, from invoicing, to expenses, to payroll. You can easily generate financial reports and also create and send professional invoices. It makes everything simpler and more accurate, and it’s easy to access from anywhere.
The software is built with double entry in mind. It’s easy to use for non-professionals, but it uses the standard methods and categorization that professionals use.
QuickBooks automatically applies credits and debits to every transaction that you are recording. But even if it does it automatically, you still have access to the nominal ledger, and you have full journal entry control. This bookkeeping software is great because it reduces the manual work that needs to be done, which also reduces errors.
PROLEDGE ANSWERS FREQUENTLY ASKED QUESTIONS
Single-entry bookkeeping is basically the easy way out. It only records the financial transaction in one place instead of two. The whole recording process becomes just ‘money in, money out’. If you take a $10,000 loan, with single-entry bookkeeping, you would just say ‘$10,000 cash in’. It might be tempting to resort to single-entry bookkeeping because it’s much easier. But, as easy as it easy to record, it’s as easy to make mistakes and not spot them. Spotting fraud is becoming almost impossible with single-entry bookkeeping.
The simple answer would be no, double entries are not required by the law. The law doesn’t generally require double entry for most businesses. Although there are some organizations that are required to use this principle. But, it’s not required for most businesses. Despite it not being necessary, it’s highly recommended to have a bookkeeping system. The fact that your data is accurate will later help you in your interactions with the law, like in tax season.
Yes and yes! You can choose whichever option overs best for you. You can definitely do double-entry bookkeeping both manually and digitally. You could do double entry on a paper general ledger or an Excel spreadsheet. You would be surprised to find out how many small business owners prefer a paper nominal ledger. But, if this is not for you, you can use software. There are several accounting software programs that you could use, but one of the best ones is QuickBooks. A software will make the job easier, quicker, and the results more accurate. So, both nominal ledger bookkeeping and software are great for double-entry. It matters that you have a ledger sheet, but it doesn’t matter if it’s done manually or with a software.
The integrity of the accounting equation must be maintained, which is why debits must always equal credits. The equation is: Assets = Liability + Equity. This is the whole point of double-entry bookkeeping, if the two don’t match, you know that there is a mistake somewhere. If the books don’t balance, all financial statements must be checked. Either something was recorded incorrectly, omitted, or recorded twice. Therefore, debits and credits must always be equal.
The answer to the previous question helps answer this one. The fact that double-entry bookkeeping is about recording every financial transaction in two places, credits and debits, makes it easier to spot mistakes. If there are any discrepancies between the two, you know that a mistake must have been made somewhere in the double-entry system. The self-checking nature of the double-entry bookkeeping system makes errors, omissions and fraud easy to detect within a business.
TESTIMONIALS
Working with ProLedge means professionalism and dedication. Check out what our clients had to say about our bookkeeping services!
We’ve been working with ProLedge for three years now and as a small business owner, their service has made a huge impact on both the accuracy of our bookkeeping and allowing us to focus on the things that we do well. Working with ProLedge was one of the best decisions we’ve made, and highly recommend them!
Using Proledge Bookkeeping Services to handle our bookkeeping has been excellent. My CPA focuses on year end tax planning and strategy and Proledge makes sure our books are clean and transactions are all accounted for. I’ve been a happy client for years now and they have always been easy to work with, transparent, and prompt in responding to any questions. Highly recommend!
I really like this company. They came to my rescue 3 years in a row, with my backed-up bookkeeping needs, in a timely and professional manner. It’s been a pleasure and a breeze working with Rebecca. I’m happy to have retained their services. I highly recommend them.
OUR BLOG
Our blog provides information on the latest bookkeeping news and tips. We always keep this section updated, so check our website regularly!
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Melissa K is an absolute GEM to work with. She’s been working with my company since the early stages and has provided a competency that I don’t for granted. Knowing that the company books are tidy, correct, and easy to understand is the ultimate security for a startup in my opinion. Melissa is definitely a part of the team and we’re happy to work with her as we grow!