In order to ensure that your books are balanced in your small business, you will want to employ a full charge bookkeeper that is experienced in double entry bookkeeping. This is a bookkeeping method that involves making a specific entry into two different accounts. For example, a loan for $10,000 would be entered as a credit in your payables account, but a debit is entered in your cash account because it is an asset for this column.

Double Entry Bookkeeping Checks and Balances

The advantage to using double entry bookkeeping is that you are constantly checking your own work. By managing two separate accounts, a missed entry or a mathematical error will be glaringly obvious and therefore offers a much more accurate way of tracking your funds. While it is a great method to use, you must be aware that not all potential employees with a bookkeeping background will be experienced in this kind of accounting. Be sure to ask this question in the interview, and ask

probing questions to ensure that this person understands the concept and is able to apply it.

It Gets Complicated

In some events, you may even have a need for compound entries. These occur when one transaction is applied to three or more accounts. For example, if the company purchases a vehicle, the amount spent would be entered in an account for vehicles as a debit, and in payables as a credit; the down payment would be entered as a credit in the cash account, and every subsequent payment would again be recorded in the cash account.

When the time comes for month end close, and later for year-end close, these accounts can easily be reconciled and should balance against one another. If they do not, a careful audit should reveal the error fairly quickly because of this detail rich method of bookkeeping.

Then it Gets Easier

While the double entry bookkeeping method seems time consuming and complicated when compared to the single entry method, it will lead to easy and accurate preparation of financial statements because the balances are posted so diligently. Besides this, it is much easier to detect fraud or criminal behavior when this method is used because it is very difficult to disguise missing funds when entries are required in multiple accounts.

In the long run, if you are the owner of a small business, you are making decisions about how your funds and expenses will be recorded from the ground up; you want to set up your books so that your books are easily balanced, even as your business grows, and so that you can best protect your assets. Choosing this method will help ensure that at then end of each month and at year end, your books are ready for close, and when tax time comes along, you have all the information and documentation you need to make the tax filing process easy and accurate. Double entry bookkeeping is a method that will help you maintain an accurate snapshot of your finances and protect your business from shady bookkeeping.