Double-Entry Bookkeeping - The World's Reclusive Necessity

The majority of the world's population, especially in developed countries, are aware of the use of accountancy within all kinds of organisations, whether they be commercial, governmental, charitable or any other kind of enterprise involving the use of money. Accountants produce accounts of several different types. Accounts to help run the organisation as efficiently as possible, accounts to meet conditions set down by governments, accounts to satisfy the requirements of taxation authorities and, in larger enterprises, accounts to keep shareholders and other interested outsiders informed of how well the organisation is operating.

The majority of the world's population also understand that the main basic skill of a house builder is bricklaying, and that the main basic skill of a successful author is an above average skill in the art of writing. However, what percentage of the world's population knows what the basic skill of an accountant is? A small minority, I would suggest.

The basic skill of an accountant is the art of double-entry bookkeeping. Double-entry bookkeeping was first evolved in Italy, late in the 15th century. But it is still the basis of all manual accounting systems, and all accounting computerised software available today, from the most simple, to the most sophisticated. It is used to control the finances of the smallest corner-store to the World Bank. Without double-entry bookkeeping, the world could not operate as it does today, but, despite its importance, only a very small proportion of the world's inhabitants have any idea of how it works and a huge percentage of the world's population doesn't even know that the term exists.

So why is this ancient art called double-entry bookkeeping? Why not just call it bookkeeping? If an accountant needs to record a transaction, surely that's what he or she does? He or she records a transaction. Why is there a need for the word "double"? The answer lies in the fact that all transactions in fact affect two or more aspects of the enterprise, so that two or more entries are required. For example, when a business makes a sale, it may be for cash or it may be on credit. If the sale was for cash it has to be recorded that the total sales made have increased, and also that the total cash owned by the entity has increased. If the sale was on credit it has to be recorded that the total sales made have increased, and also that the customer now owes the entity money that has to be collected in the future.

There are a million other examples but, in each case, more than one category needs to be adjusted. Double-Entry Bookkeeping is a skill that more people, especially small business people should be much more familiar with. Don't you agree?

For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com

(C) 2011 Philip Ramage All rights reserved