The Advantages of Double Entry Bookkeeping

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Double entry bookkeeping helps prevent errors by providing checks and balances for every transaction.
Double entry bookkeeping helps prevent errors by providing checks and balances for every transaction. (Image: Hemera Technologies/Photos.com/Getty Images)

Double entry bookkeeping, as its name implies, requires that every transaction be recorded in the accounting system twice: once in a debit, or "receiver," account, and once in a credit, or "giver," account. Dating back to 15th century Europe, the double entry bookkeeping method is a meticulous practice that records the most information possible about every transaction made.

Provides for Greater Accuracy

Double entry bookkeeping provides a greater degree of accuracy and mathematical certainty than does single entry bookkeeping. Because every transaction is entered into two distinct accounts, debits and credits, which must always balance, double entry bookkeeping provides a rigorous mathematical check on each transaction. Arithmetical mistakes can therefore be found more easily, and a trial balance report can be created, which will verify whether or not the debits and credits posted are in balance.

Reveals a Business’s Condition More Clearly

Because double entry bookkeeping posts each transaction as both credits and debits, double entry bookkeeping provides a clearer picture of a business’s performance and financial picture at any moment than does single entry bookkeeping. Double entry bookkeeping provides for the creation of a profit and loss statement, which reveals the business’s true condition in a way that single entry bookkeeping cannot. What’s more, double entry bookkeeping can also reveal a business’s gross profit and net profit at any time, information that is critical in understanding whether the business is making money or losing money.

Clearly Reveals Debtors and Creditors

Double entry bookkeeping also permits the creation of a sales ledger and purchase ledger, indicating who has made purchases from the business and who the business has made purchases from. Using these reports, a business owner can more easily track who owes him money and whom he owes money to. Single entry bookkeeping cannot provide these details with sales ledger or purchase ledger reports.

Reduces the Risk of Fraud

Double entry bookkeeping also severely reduces the risk of fraud or accounting malfeasance for a business by making any alterations for false entries in the accounts more easily revealed and tracked. Thus, double entry books are more secure than single entry books, which do not provide the automatic check-and-balance of the double entry bookkeeping system.

Year End Accounting

Double entry bookkeeping, by nature of its credit and debit tracking, makes producing a business’s year-end accounts easier, and protects them from mathematical errors. It also provides a means of calculating opening balances at the start of a year, and closing balances at the end of a year.

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