What is Double Entry Bookkeeping?
Every business needs expert bookkeeping to be able to achieve its full potential and make money. All business transactions must be recorded so that finances can be easily managed. In all of the business undertakings, financial stability is crucial. For professional bookkeeping services, you can always trust the experts at Teva Solutions Inc. We will make life easier for you.
There are a lot of bookkeeping styles depending on the demands of the business. As a business owner, you only want what’s best for your company, so you select the strategy best suited to your business requirements. Although all bookkeeping styles are effective, you need to choose the most secure one, like double entry bookkeeping. Here are some guides to show more about how double entry bookkeeping actually works.
How Was the Double-entry Bookkeeping Method Created?
In the late 1940s, mathematician Luca Pacioli recognized the method as a significant part of the accounting cycle. This method helps minimize errors and increase the chances of your records balancing. It gets the name “double-entry bookkeeping” due to the fact that you record your transaction twice in your ledger. There is no limit to how many accounts you should use as long as there is a minimum of two.
How Does Double Entry System Work?
The method of double-entry bookkeeping is considered one of the fundamentals of modern accounting. This method has two characteristics: (1) uses two accounts in recording the same transaction and (2) each account has two columns. These two columns are for debits and credits. This means that all debit transactions are recorded in the left column and all credit transactions are recorded in the right column in both accounts. The method follows a simple formula: Assets = Liabilities + Equity which ensures all listed on the credit side must be equal to the ones listed on the debit side. In this manner, balancing is easier.
Example/Situation Double Entry Bookkeeping System is Mostly Used
For example, if you purchased merchandise worth $1000 dollars, it must be recorded as $1000 dollars credit to your inventory account and $1000 dollars debit to your cash account. This means that both the credit and debit affect asset accounts.
To learn more about this method contact Teva Solutions Inc. and we will discuss the best bookkeeping style for your business needs. Our professional bookkeeping services will make your accounting task easier and ensure it is accurate because at Teva Solutions Inc. we value your hard work.