1. Increased accuracy and accountability
Double entry accounting is a system that requires every transaction to be recorded in at least two accounts. One of the main advantages of double entry systems is its increased accuracy and accountability through its scientific and systematic system of recording transactions.
Under this system, each transaction is recorded twice, once as a debit and once as a credit in two different accounts. This provides a check and balance system that helps to reduce errors.
It therefore offers much greater transparency, as all transactions are recorded and can be easily viewed and provides businesses with a better way to track their income and expenses, ultimately resulting in more accurate financial reporting.
As a result, double entry bookkeeping helps to ensure that financial statements are accurate and trustworthy.
2. Easier year-end tax preparation
Since all your transactions are neatly organised, preparing your taxes will be a breeze with double entry bookkeeping. Firstly, it provides a clear and concise record of all financial transactions. This makes it much easier to identify and track expenses, which can be helpful in determining deductions.
Secondly, double entry bookkeeping ensures that all entries are balanced. This means that there is less chance of errors, which can save time and money when filing taxes. In addition, it also makes it much easier to prepare necessary financial documentation like a profit and loss account, balance sheet, or trial balance sheet when forming ledger accounts or filing taxes.
Finally, double entry bookkeeping can help to improve cash flow management. By keeping track of income and expenses in real time, businesses can make better decisions about how to allocate their resources and help to identify potential deductions a business may be eligible for.
3. Greater transparency and oversight
Adopting a double entry bookkeeping system for your business offers several advantages in terms of transparency and oversight. With double entry bookkeeping, every financial transaction is recorded in two separate ledgers, which provide a clear and concise record of all money coming into and going out of your business.
For example, if a company purchases inventory with cash, the transaction would be recorded in both the stock/inventory and cash accounts. This would provide clear evidence of the purchase, as well as provide information on the company’s current cash position. That means everyone involved in the business can easily see what’s going on financially and the businesses overall financial position – making it easier to make sound decisions about the future of the company.
This system also helps to prevent errors and ensures that all financial information is up-to-date.
In addition, double entry bookkeeping makes it easy to track spending and income, identify trends, and spot potential problems. As a result, this system can provide valuable insights that can help you to run your business more effectively.
4. Improved cash flow management
The double entry system makes things much easier when it comes to recording business transactions like receivables and payables, which can help you better manage your cash flow.
For any business, large or small, cash flow is king. Without careful management, it can be all too easy for money to slip through the cracks. This is where double entry bookkeeping comes in.
By tracking both incoming and outgoing payments, double entry bookkeeping provides a more accurate picture of a business’s financial health. This, in turn, can help businesses to make better decisions about how to allocate their resources when they can clearly see their cash flow.
In addition, double entry bookkeeping makes it easier to spot errors and discrepancies. As a result, businesses that use this system are less likely to experience cash flow problems as they can identify and correct errors more quickly than competitors using a weaker or more error-prone bookkeeping system.
5. Simplified financial reporting
One of the biggest double entry system advantages is that it offers businesses simplified financial reporting. In double entry bookkeeping, all transactions are recorded in two separate accounts, with each account being debited or credited for the amount of the transaction. This system provides a clear and concise record of all financial transactions, making it easy to track income and expenses.
As a result, businesses can quickly and easily see where their money is going, and identify any areas where they may be overspending. Additionally, double entry bookkeeping can help businesses to spot errors or discrepancies in their financial records. By carefully tracking all entries in two separate accounts, businesses can ensure that their books are accurate and up-to-date.
6. It can help you catch mistakes and prevent fraud
One of the disadvantages of a single entry bookkeeping system, is that it is relatively easy for someone to make an unauthorised transaction and then simply erase it from the records. With double entry bookkeeping, however, any unauthorised transaction would need to be made in two separate accounting records, making it much more difficult to conceal.
Another advantage of double entry bookkeeping is its clear record of all transactions, which can be especially helpful in identifying patterns of fraud or embezzlement.
Finally, double entry bookkeeping also creates separate records for assets and liabilities –helping to prevent fraudsters from hiding their activities by mixing up the two.
Final thoughts
The double entry system is a popular choice for bookkeeping because it offers a number of key advantages. If you’re looking for a system that can help you better manage your finances, the double entry system is definitely worth considering.
At Raw, we’re passionate about helping businesses grow and succeed. We understand that in order to make informed decisions about the future of your company, you need accurate and transparent financial data. And with over 10 years of experience in providing quality bookkeeping services to businesses both big and small, that’s why we offer double entry bookkeeping services that provide you with all the information you need to make sound business choices. Contact our experienced team today to learn more about our services and how we can help you take your business to the next level.
