Single entry bookkeeping is much like the running total of a current account. Linking each accounting entry to a source document is essential because the process helps the business owner justify each transaction.īookkeeping supports every other accounting process, including the production of financial statements and the generation of management reports for company decision-making. When entering business transactions into the accounting software, accountants need to ensure they link and source both the debit and credit entry. If a business ships a product to a customer, for example, the bookkeeper will use the customer invoice to record revenue (credit entry) for the sale and to post an accounts receivable entry (debit entry) for the amount owed. A bookkeeper reviews source documents for instance receipts, invoices, and bank statements -and uses those documents to post accounting transactions within a proper accounting software solution. The term “bookkeeping” refers to a business’s record-keeping process. For each credit entry within the general ledger there must also be a corresponding (and equal) debit entry. There are a range of useful accounting skills to learn through AAT.Double entry accounting is the standardised method of recording every financial transaction in two different accounts within the general ledger. This was a vast improvement from the abacus and early single-entry systems used from the age of Antiquity.Īs Double entry bookkeeping became more widely used, it extended to include detailed descriptions of products, income, expenses, loans, bad debt, and more. So where did it come from? History suggests that Double entry bookkeeping was first used by merchants in the Middle Ages. External users, like investors, depend on financial statements to view a company’s creditworthiness. Management depend on financial statements to see how the companies performing financially and to create budgets. It’s important for companies to produce accurate financial statements quickly and efficiently. For example, if your cash balance seems too high on your balance sheet, you can trace back the transactions made to the cash account and see if they’re accurate.įinancial statements are easy to prepare in companies that use Double entry bookkeeping because info is gathered directly from the Double entry bookkeeping transactions. Audit trails allow you to trace transactions that were posted to the general ledger. Although errors are greatly reduced, it does not entirely prevent error.ĭouble entry bookkeeping reduces fraud by leaving an adult trail. Errors are easily caught with Double entry bookkeeping because the debit and credit amounts are equal. But Double entry bookkeeping reduces the chance of that as it provides checks and balances. Human error can distort a company’s financial position. Recording both means you’re accurately calculating profit and loss. The matching principle makes sure that expenses relate to revenue. One reason that Double entry bookkeeping is so accurate is that it implements the “matching principle”. When delving into the subject you’ll be made aware of concepts such as: account types, debits and credits, using day books, ledgers, account reconciliation, bank reconciliation, suspense accounts, using journals to correct errors and trial balances.Īll the above is important when progressing on to the later levels such as Advanced or Professional Level (Level 4), and for working in accounts.īenefits of Double entry bookkeeping Accuracy If you start at Foundation Certificate (Level 2), you’ll be eased nicely into the topic, whereas Advanced Level (Level 3) offers more detailed look. Once you master this skill you can produce accurate financial accounts for your management. Companies massively benefit from using Double entry bookkeeping because, not only reducing errors, it helps with financial reporting and prevents fraud.īookkeeping teaches you how to accurately record transactions into a manual Double entry system. The “Double entry” has two equal sides – a “debit” and a “credit”įor instance, recording a sale of £1 requires two entries: a “cash” debit of £1 to an account, and a “revenue” credit of £1.ĭouble entry accounting reduces errors and boosts the chance of your books balancing. It’s a type of bookkeeping where every post to an account requires an opposite post to a different account. Double entry bookkeeping is an accounting technique that records a debit and credit – for all company transactions.
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