Double Entry
Candlefocus EditorTo begin recording financial transaction, double-entry bookkeeping records the interaction of the two sides of all financial transactions. One side of the transaction is the debit and the other side is the credit. The debit and credit sides of all the transaction are taken note of and the overall value of each account is calculated by subtracting the credits from the debits. This system is based on the equation, Assets = Liabilities + Owner’s Equity.
The effectiveness of double-entry bookkeeping is evident in both small and large businesses alike. Every financial transaction involving money, property, or goods must be correctly balanced in order to be accepted as valid. This double-entry system ensures that necessary balances remain in check and alert businesses when something appears to be off balance. This system is also very helpful for tracking assets and liabilities over the long term.
Double-entry bookkeeping is one of the key elements of the accounting process and a fundamental tool for recognizing profit and loss statements. As businesses are able to generate financial statements with accuracy, it is also easier for investors, lenders and other external parties to evaluate the business’s performance and growth. This bookkeeping system is also beneficial in tracking and matching income sources, expenses, payroll taxes and accounts receivable.
In conclusion, double–entry bookkeeping remains one of the cornerstones of proper and accurate financial recording, one which has been used by businesses since 1494. This method is extremely important in helping users such as corporations, non-profit organizations, and small businesses accurately analyze, record and monitor their financial transactions.