The financial and transactional records of a firm are like their assets. Keeping accurate and authentic financial documents is one of the challenging things. Several methods are in practice that helps accountants to keep the records safe for future and current use.
Some accounts records and books help develop other financial documents such as financial statements, profit loss accounts, ledger, and balance sheets, etc. One of the most important and complete checklists of accounts and bookkeeping methods that help to create the account as mentioned above records.
Keep scrolling this article to understand the double-entry bookkeeping method and the benefits that any business can enjoy using this method.
What is Double-entry bookkeeping, and what are its rules?
Double-entry bookkeeping is a bookkeeping and accounting method in which each transaction has two entries, a debit and a credit. The debit amount in one account must be equal to the credit amount in another account. The deviations and variations in the credit and debit amounts will cause numerous problems for a business. To keep an accurate and correct record of your transactions, hire bookkeeping and accounting firms in Dubai and analyze your financial status well.
The following few points are some of the rules on which the double-entry bookkeeping methods work.
- Every debit entry must have a credit entry.
- The debited amount on the left must be equal to the credited amount on the right.
- The sum of debits must be equal to the sum of credits.
- Debit the expense and amount payable and credit the income and liabilities.
What are the advantages of Double-entry bookkeeping?
Double-entry bookkeeping methods are in practice for many years, and the only reason for still using this method is the accurate records it provides. An organization or a business can enjoy various benefits and extract reliable and authentic documents using this bookkeeping method.
The following few points are some of the very important advantages of the double-entry bookkeeping method.
1. Minimum bookkeeping errors
Any business or organization needs to have accurate and fair records. Double-entry bookkeeping methods ensure that all the transactions are recorded twice and help in developing factual financial statements. Accurate financial information means that the decision made by the authorities of a business will be real and in favor of business growth.
2. Helps in making effective decisions
As businesses and organizations are well aware of their financial status and position, they can make effective decisions by looking at books prepared by double-entry bookkeeping methods. You keep track of every transaction in double-entry bookkeeping methods, which helps the authorities decide what factors need attention and control. Event the stakeholders, investors and banks look at these records and decide on investing or providing loan to a business or entity.
3. An overview of the financial status
Profit and loss amounts are very important for any business as they exhibit the financial status and position. With these methods, you have a clear image of your profit and loss amounts. Comparing profit/ loss accounts for the current year with the previous years becomes much easier and faster, which gives a progress report of a business in the current year from the previous one.
4. Preferred by the experts
The methods are in practice for many years, and there is a solid reason behind it. It is one of the most effective and easiest ways to keep track of business income and expenditures. Experts usually recommend these bookkeeping methods to large firms and organizations because of their numerous benefits.
5. Accounts receivables and payables are known well
All outstanding accounts receivables and payable are well known to a business or organization. Double-entry bookkeeping ensures that whenever a company receives an amount from an outside source, they add the amount to the receivables and outstanding payables. This strategy helps organizations control frauds and thefts as they have a clear view and understanding of what is coming into the organization and what amount they need to give to others.
6. Every debit has a corresponding credit
For every record in double-entry bookkeeping, the debit amount will have a corresponding credit amount. For example, if a company buys goods or products for business needs, then the amount of goods purchased will be credited to the assets, and the amount paid to purchase the goods will debit in the form of a business expense.
It is very important to add record both the credit and the debit amount because it will bring an imbalance in the statements, and the error will be difficult to identify. Hire the bookkeeping and accounting firms in Dubai to avoid any such errors and deviations in your books.
Read also: How to Save Your Business from Insolvency?
Every business can take advantage of Double-entry bookkeeping
It is not important and necessary that only large organizations and firms can take advantage of double-entry bookkeeping methods. Any business that serves more than one customer or deals with more than one entity must follow this method. It provides a wide range of benefits if the strategies are played-off well and under expert supervision.
