If you are running a business or learning accounting basics, you might have heard about “double entry system.” It is the basic concept of accounting. In this blog, I’ll explain what the double entry system of accounting is, how it works, how it’s different from single entry, and why it’s important.
What is Double Entry System of Accounting?
The double entry system is a method of recording financial transactions where every transaction affects two accounts: one is debited, and the other is credited.
Whenever money comes in, it must be coming from somewhere and whenever money goes out, it must be going somewhere, so two accounts must be affected one is debit and the another one is credit. This method keeps your books balanced and gives you a complete picture of your business’s financial position.
Difference between Single Entry System and Double Entry System
| Feature | Single Entry System | Double Entry System |
| Records | Only one side (either income or expense) | Both debit and credit sides |
| Accuracy | Less accurate | Highly accurate |
| Error Detection | Hard to detect errors | Errors are easier to find |
| Suitable for | Very small businesses | All types of businesses |
| Example | Only recording sales | Recording sales and cash received |
How Does the Double Entry Accounting System Work?
The double entry system is based on a simple rule: Every transaction affect two account one is debited and other one is credited.
This means, for every amount of money that comes in (Debit), the same amount goes out (Credit) which helps keep your books balanced, it means total debit always equal to total credit it keeps the account more accurate and it become easier to track money, prepare financial report and check the financial statement of the business.
Understanding this concept with an example:
Let’s say you buy a chair for your office and pay ₹5,000 in cash.
Here’s how it’s recorded:
- Furniture Account (Asset) – Debit ₹5,000 Because you are receiving furniture, it’s something your business owns now.
- Cash Account (Asset) – Credit ₹5,000 Because cash is going out of your business to pay for the furniture.
So, in this transaction:
What you receive (Furniture) is Debited.
What you give (Cash) is Credited.
Advantages of Double Entry Accounting System
- Accuracy: Keeps accurate and complete records of transactions.
- Improved Financial Reporting: Helps you to prepare financial statements like profit & loss statement and Balance Sheet and cash flow statement.
- Easy Tracking: Makes it easy to track income and expenses as it gives you a clear record of transactions.
- Prevent Errors: Helps in detecting and preventing errors or mistakes.
- User-friendly: Accepted by banks, investors, and tax departments.
Disadvantages of Double Entry Accounting System
- Complex by nature: Slightly more complex than single entry because here you keep both side record.
- Expert knowledge required: Needs basic accounting knowledge because it is the basic concept of accounting.
- Time Consuming: Can take more time to record each transaction manually.
But today, most of this is handled by software, so it’s not a big problem.
Best Double Entry Accounting Software
If you’re starting out with accounting, it’s important to use software that’s simple, reliable, and beginner-friendly. Here are some of the best double-entry accounting tools or software that managing your business finances easier even if you don’t have a background in accounting:
1. Zoho books
Zoho Books is an online accounting software that helps you to manage your business finances easily. It’s made for small businesses, freelancers, and even startups. It keeps track your income and expenses statements, GST bills, customer payments, and also track overall business performance.
- Why it’s great: Perfect for Indian businesses, especially those looking for a GST compliant solution.
- Features:
- Easy-to-use dashboard and navigation.
- Include GST invoicing and filing features.
- Bank reconciliation, reporting, and automation.
- Integration with other Zoho apps like CRM and Inventory.
2. Quickbooks online
QuickBooks Online is a cloud-based accounting software that helps you manage your business money. It keeps track like much money you earn and spend.
- Why it’s great: One of the most popular accounting tools worldwide, designed with simplicity and flexibility.
- Features:
- Cloud-based, so you can access it from anywhere.
- Tracks income, expenses, GST, and payroll.
- Easy invoicing and automatic bank feeds.
- Make useful reports like Profit & Loss and Balance Sheet.
3. Tally Prime
Tally Prime is a popular accounting software used in India that helps businesses manage their accounts, GST, inventory. It keeps track your sales and purchase, manages of income and expenses, prepares GST returns.
- Why it’s great: A trusted name in Indian accounting software, known for its features and GST support.
- Features:
- Complete double-entry accounting system.
- GST-ready billing and return filing.
- Suitable for both offline and online use.
- Advanced features like inventory, payroll, and cost centers.
4. Wave accounting
Wave Accounting is a free accounting software made for small businesses, freelancers, and startups. It keeps you track your income and expenses, send invoices, and manage your money.
- Why it’s great: It’s completely free and very beginner-friendly software, especially for freelancers and small service businesses.
- Features:
- Basic accounting concept include double-entry and bookkeeping.
- Simple invoicing and expense tracking.
- Clean reports and receipt scanning.
5. Odoo accounting
Odoo Accounting is a part of the Odoo business software. It helps you manage your company’s accounts, bills, and invoices in an organized and easy way. It keeps track your payment and expenses, connect your bank account, generate reports like P&L, balance sheet and cash flow statement.
- Why it’s great: A part of the larger Odoo ERP suite, Odoo Accounting is customizable and great for growing businesses.
- Features:
- Full double-entry accounting with real-time reports.
- Help to prepare invoicing, payment tracking, and prepare bank reconciliation.
- Easily integrates with Odoo’s inventory, CRM, and HR modules.
Conclusion
The double entry system is the backbone of modern accounting, it is the basic concept of accounting. It helps keep your business records clean, balanced, and reliable. Every time you earn or spend money, it records the transaction in two sides i.e. debit and credit, this helps you catch mistakes, track your business performance, and make better financial decisions.
If you’re using good accounting software like Zoho Books, QuickBooks, Tally Prime, or Odoo, these software make your work easier and your records more reliable.
FAQs
1. What is double entry system in financial accounting?
It’s a method where every transaction is recorded in two accounts one debit and one credit to keep the books balanced.
2. Who invented the double entry system of accounting?
The double entry system was first described by Luca Pacioli, an Italian mathematician, in the year 1494.
3. How to check double entry in Excel?
You can create a simple Excel sheet with columns like:
- Date
- Description
- Debit
- Credit
Then, use Excel formulas to check if total debit = total credit. You can also add filters to track individual accounts.
4. Why is the double entry system important?
Double entry system is important because it helps to keep your books accurate and balanced. It also makes it easier to find errors and understand the financial position of your business.
5. What are the two main rules of double entry accounting?
- Debit what comes in
- Credit what goes out
This means every transaction affects two accounts one is debited and the other is credited.
