Getting to grips with double entry bookkeeping
One of the golden rules of accounting is double-entry bookkeeping. The only problem is that to the uninitiated, it’s shrouded in mystery and confusion. If, like us, you start to get sweaty palms just thinking about it, we’ll let you into a little secret…you don’t need to fully understand this all rather abstract accountancy concept to be able to use it.
Yes, the double-entry bookkeeping way is pretty much standard, but if you use our Kashflow software, once you are all set up, there is no need to enter everything twice, it’s all done for you behind the scenes. So, when you create an invoice for a client and then get paid, there’s no confusion over which ledgers you should enter the transaction into. Now isn’t that a relief? For a broader overview of bookkeeping within KashFlow’s Accounting system please read our main bookkeeping page here.
Double entry bookkeeping – the principles and rules
Account-types will always remind us of their mantra that assets=liability+equity and that equity=assets-liabilities and this is indeed the basis for the double entry bookkeeping method. In the olden days before computer software like ours came along to take the fastidiousness out of doing your books, you would literally enter each transaction or event at least twice.
The idea is that debits increase expenditure, assets and dividends (where relevant), whilst credits decrease liabilities, income and capital. The problem we always have is being able to understand this, as before we set up our own business, the only experience we had of debits and credits was when we glanced at our bank statements. A debit was just a subtraction, that’s to say a minus and credits were monies going in or a plus, but of course in the heady world of accounting and double entry bookkeeping, it’s not that simple.
So how does this double entry bookkeeping system work?
At this point we could try and explain how double entry bookkeeping works with some examples, such as when you buy a new computer for the office, or when a supplier invoices you. But to be honest there’s little point. As we mentioned earlier, our programme has been designed to do it all for you, so rather than you trying to become adept at accountancy, you can stick to what you do best – running your business.
However, what is worth knowing is that double-entry bookkeeping is essentially a good thing, as it helps minimise errors and will help you to balance the books at the end of each quarter. So, as our online solution works in the same way (albeit without you having the hard slog of entering everything twice, thank goodness) you can be rest assured that you will be balancing the books with ease as it’s all achieved automatically, with end of year, quarterly and monthly reports being produced with the click of a button.
If our online double entry bookkeeping software sounds like what you need for your business, have a look at our demo video to find out more about how Kashflow works for you. As they say, the proof is always in the pudding and we’re so confident about our pudding that we are offering a free 14-day trial!