Double entry bookkeeping is a widely used accounting technique that professional bookkeepers use for recording business transactions. Bookkeepers record debits and credits for all company transactions via double entry bookkeeping. It is also mandatory for companies to use the same bookkeeping method in Mississauga to effectively manage their books. Besides, top bookkeeping services in Mississauga rely on double entry bookkeeping to correctly record business transactions for their clients.
In addition, double entry bookkeeping is a type of bookkeeping where every post to an account requires an opposite post to a different account. Or, you may understand it like this, double entry bookkeeping system has two sides, embracing a debit and a credit. For example. recording a sale of CAD$10 requires two entities as follows: a cash debit of CAD$10 to an account and a revenue credit of CAD$10.
What Is the Point of Using Double Entry Bookkeeping System?
Double entry bookkeeping minimizes errors and aids in enhancing the chance of your books balancing. Companies enormously benefit from using double entry bookkeeping for various reasons. We shall have a look at the advantages of the system later on. Besides, double entry bookkeeping aids the company in generating accurate financial reports and preventing fraud.
Further, bookkeeping also teaches how to correctly record transactions into a manual, “Double Entry System”. Mastering double entry bookkeeping can also help you generate accurate financial accounts for your management.
How Can You Learn And Master Double Entry Bookkeeping?
Learning becomes easy when you are well aware of the concepts that constitues a subject. The same holds for bookkeeping. You should become aware of the following concepts first to successfully learn double entry bookkeeping: Account types, debits and credits, using day books, ledgers, account reconciliation, bank reconciliation, suspense accounts, and using journals to rectify errors & trial balances. Moreover, after learning these concepts, you should practise recording sample business transactions you may find via books or online resources. It will aid you in mastering recording business transactions with accuracy over time and eventually help you master double entry bookkeeping.
What Are the Benefits of Double Entry Bookkeeping?
The benefits of double entry bookkeeping are more than you may expect. For the same reason, the best bookkeeping services in Mississauga, such as GTA Accounting, use the same bookkeeping system. Besides, the following are the benefits of using double entry bookkeeping:
You can accurately record business transactions with double entry bookkeeping. Double entry bookkeeping relies on the matching principle that also contributes to the accuracy of this system. The matching principle ensures that expenses relate to revenue. Furthermore, recording both means the accurate calculations of profit and loss.
Human errors can ruin the financial position of a company, based on how big are the errors that humans make. On the other hand, double entry bookkeeping aids in minimizing the chances of errors from occuring. Double entry bookkeeping relies on checks and balances, which also help in error reduction. Plus, you can easily identify an error via this system as the debits and credits amounts are equal. You can reduce errors with double entry bookkeeping; still, it doesn’t mean this system completely prevents errors.
Leaves an Audit Trail:
Double entry bookkeeping reduces fraud because it leaves an audit trail. Audit trails let bookkeepers track transactions that were posted to the general ledger. For instance, if the cash balance seems too high on the balance sheet, you can track transactions back that were made to the cash account to check the accuracy.
Financial Statements Become Easy to Prepare:
Preparing financial statements also becomes easy for companies that use double entry bookkeeping. Companies can directly gather information from double entry bookkeeping transactions for preparing financial statements. It is also vital for companies to generate accurate financial statements fast and efficiently. Management also relies on financial statements to see the financial performance of the company and create budgets. Plus, investors use these statements to check company’s creditworthiness.
How Did Double Entry Bookkeeping Originate?
We shall also like to tell you about how double entry bookkeeping originated. Firstly, the merchants in the Middle Ages used this system. Moreover, this system was a vast improvement from the abacus and early single entry systems from the Age of Antiquity. Today, double entry bookkeeping system includes detailed descriptions of products, income, expenses, loans, bad debt, etc.
Double entry bookkeeping is a widely used accounting technique for recording business transactions. Most companies rely on this system to minimize errors and increase their chances of books balancing. Top bookkeeping services in Mississauga also rely on the same technique to accurately record business transactions for their clients. Moreover, there are noticeable advantages of double entry bookkeeping, which include the following:
- Avert errors
- Leaves an Audit Trail
- Financial Statements Become Easy to Prepare
To finish, double entry bookkeeping system originated in the Middle Ages as a vast improvement from the abacus.