Question: What is Double Entry Accounting?
Double entry accounting is a "must have" feature in financial software for small businesses. While not required for personal finance management, double entry accounting is useful in personal finance software as well.
Answer: Double-entry accounting is a standard accounting method that involves each transaction being recorded in at least two accounts, resulting in a debit to one or more accounts and a credit to one or more accounts. Double entry accounting provides a method for quickly checking accuracy because the sum of all accounts with debit balances should equal the sum of all credit balance accounts.
The best accounting software for business uses double entry accounting; without that feature an accountant will have difficulty preparing year end and tax records. Personal finance software does not necessarily require double entry accounting, although some personal finance titles provide this feature but hide it from the user to prevent confusion.
Double Entry Account Types:
Asset accounts - something you own, such as your checking account or the unmortgaged portion of your home.
Liability accounts - something that you owe, like a mortgage, car loan or credit card balances.
Income accounts - money you receive.
Expense accounts - money you spend.
Resources to learn more about double entry accounting:
Accounting for Dummies
- Hands-On Practice: Accounting Workbook for Dummies
- Financial Accounting: An Introduction to Concepts, Methods and Uses