Starting from the very basic, double-entry bookkeeping is considered the idea, in which every transaction will include a minimum of two accounts, if not more. To be more precise, if a business organization takes a loan, the cash account will raise due to the loan amount. However, the liability account will also rise in the particular account category called loans payable. Likewise, if a company buys print ads, the cash account reduces while the expense account that is under the advertising expense account category will rise.
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The main intention is to always maintain the balance, to help the double-entry bookkeeping system use the accounting equation. Some people call it financial compliance equation and it looks like =
Liabilities + Owner’s Equity = Assets
With the help of double-entry bookkeeping, it is possible to determine the account balance. It can be done by adding the debits as well as credits with the starting account balance. However, calculating this arithmetic manually is difficult. But thanks to QuickBooks, it can be done easily.
What is a Double-Entry Bookkeeping Accounting System?
In simple terms, double-entry bookkeeping is a typical accounting system where each transaction is registered in two accounts, one is a credit account while the other is a debit account. For instance, if you take a loan of USD 1000, the assets credited will be USD 1000, and the liability undertaken will be USD 1000.
What are Debit Entries and Credit Entries?
Entries that are on the left side of a transaction are debit entries. These entries create a certain impact like a rise in expenditure or assets, reduction in income, liability, or equity.
Entries, however, on the right side of the transaction are called credit side entries. These entries create a certain impact like a reduction in assets or expenses, and additionally of equity, income, or liability.
What are the Applications of the Double-Entry Accounting System?
Here are the applications of the double-entry accounting system in the real world:
- Getting interested in depositing money into a particular business bank account that would ultimately in debit for all the cash accepted with an associated credit to finance income. It would eventually mean a rise in income.
- Getting a bank loan would mean debit due to the cash received. This would give rise to a surge in assets, however, the credit will be a bank loan account. This will highlight a rise in liability.
- Buying an equipment piece with the cash will display credit for the cash and debit for the particular equipment. This ultimately turns up to be a reduction in assets.
- Disbursing normal shares of your business for cash will give rise to a debit for the cash accepted and will show a rise in assets. Also, there will be particular credit for share capital, showcasing a rise in equity.
Who uses Double-Entry Bookkeeping with QuickBooks?
It is given that public organizations should use the double-entry bookkeeping system as per the stated law. As per government norms, the generally accepted accounting principles (GAAP) public organizations are required to obey all the rules stated by the GAAP.
Add to it, small organizations, who have a team strength of more than one employee and want to apply for a particular loan, must use double-entry bookkeeping. This particular system is considered very precise, to the point, and can monitor the financial situation of a business and its growth rate.
Explain the Importance of Double-Entry Bookkeeping
Very few companies and organizations can do a single entry with bookkeeping. However, double-entry bookkeeping has its own set of benefits.
Here is the list:
Offers a Perfect Financial Status
Small organizations can use double-entry bookkeeping to keep a track of the financial condition of the company and also its growth rate.
Actually, a double-entry bookkeeping system is required for an organization that has more than one employee. Companies that have more than one inventory or have several accounts and debts can also use double-entry bookkeeping.
Aids Organizations to make the Perfect Financial Choices
Double-entry bookkeeping’ financial statements inform the small business about their profitability status, and how financially robust different parts of the business is.
Steps to Create a Double-Entry Bookkeeping Account
With QuickBooks, it is possible to use the double-entry bookkeeping method. Please find below the steps to create a double-entry bookkeeping account:
Step 1: First you need to log in or sign in to QuickBooks. Now, the user needs to navigate to the dashboard area where there are several options to configure the company account.
Step 2: In order to have a parallel account for the purpose of double-entry bookkeeping, the software will recommend the user to name the parallel account. This particular parallel account is called liability account.
Step 3: When the account is created, it becomes necessary to configure the transactions entry. In the foremost entry, it is necessary that money is debited. In the second column, it is important that money is credited.
There are multiple benefits of using a double-entry bookkeeping system with QuickBooks. Among the benefits, the ability to find arithmetic errors and the advantage of having complete financial data that provides valuable financial insights. Add to it, double-entry Bookkeeping in QuickBooks also escalates the data compiling process that is needed to create financial statements like income statements, net worth statements, etc.
If you are highly impressed with double-entry bookkeeping in QuickBooks but lack the confidence to do it all alone, hire an expert.
Our skilled QuickBooks technicians are masters in their trade. They will provide you with the best-in-class QuickBooks assistance to help you use double-entry accounting in QuickBooks.
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