What is Double-Entry Accounting?

For both the cash-basis and the accrual-basis accounting methods, professionals use something called double-entry accounting to record transactions (if you don’t know what the difference is between the cash-basis and accrual-basis accounting methods, make sure to check out our last blog post to learn more).

Double-entry accounting is the standard bookkeeping practice to record transactions, as it records the transactions in at least two different accounts as debit and credit entries (in certain scenarios, they are recorded across multiple accounts). To fully understand double-entry accounting, you will need at least a brief overview of debits and credits.

In accounting, every transaction you make will debit and credit an account, or multiple accounts. Think of it as recording which account the money left out of, and which account that money is going into. A simple example we used in a previous blog post is the following: if you own a coffee business and you purchase stock like coffee beans, syrups, and paper cups, you would debit (increase) the inventory account, and credit (decrease) the cash account. Now, as a business owner, if you don’t know much about accounting, debits and credits may confuse you, especially because the way that you debit or credit an account for a transaction depends on the type of account it is, whether it’s an asset, liability, equity, revenue, or expense account.

The main purpose of double-entry accounting is simply for checks and balances (aside from it being the standard practice for accounting professionals). When you implement double-entry accounting into your bookkeeping, you ensure financial accuracy, reduce errors, and prevent fraud. You have a clear historical record of how money was moved within your business and for what purpose. When you pair that with a tight-proof receipt management system, you can be confident that your business finances will be organized, valid, correct, and ready for tax filing.