Double Entry Accounting Explained: A Simple Guide for Small Business
Double entry accounting is the standard method used by businesses to track and verify every financial transaction. It works by recording each transaction in two places — once as a debit and once as a credit — which keeps your books balanced and your financial statements accurate.
Whether you’re managing your own books or hiring a remote bookkeeper, understanding the basics of this system will help you make better decisions and avoid costly errors.
What Is Double Entry Accounting?
Double entry accounting is built on a simple concept: for every transaction, two things happen. For example, when you spend money, your cash account decreases and another account — like an expense — increases. This two-sided recording helps ensure that your financial records always stay in balance.
At the core of this system is the **accounting equation**:
Assets = Liabilities + Equity
If your books are accurate, this equation will always balance. That’s the power of double entry.
Debits and Credits: What Do They Mean?
Forget the everyday meaning of these words. In accounting, “debit” and “credit” don’t mean good or bad — they simply tell you which side of the ledger a number appears on.
| Account Type | Debit Increases | Credit Increases |
|---|---|---|
| Assets | ✅ | ❌ |
| Liabilities | ❌ | ✅ |
| Equity | ❌ | ✅ |
| Revenue | ❌ | ✅ |
| Expenses | ✅ | ❌ |
Example: If you buy $500 in office supplies using your business debit card:
- Debit → Supplies Expense $500
- Credit → Cash $500
Why Double Entry Matters for Small Businesses
- Accuracy: Every entry has a check-and-balance built in.
- Professional Reports: Your P&L and Balance Sheet are based on this system.
- Audit Protection: If you’re ever audited, clean records prove your case.
- Loan & Grant Readiness: Lenders and grant providers expect double-entry reports.
For many small businesses, using QuickBooks Online handles this automatically behind the scenes. But if you’re doing it manually, it’s crucial to understand what’s happening and why.
Is Double Entry Accounting Hard to Learn?
It might sound intimidating at first, but most business owners can grasp the basics within a day. And you don’t need to become an expert — you just need to know enough to recognize whether your books are working or not.
If you’d rather not deal with the learning curve, we offer monthly bookkeeping packages that handle all of this for you — using QuickBooks Online and custom reports tailored to your business.
Need Help Getting Started?
If you’re behind on your books, or not sure if your current system is set up right, visit our Catch-Up Bookkeeping Services page or use our Ask-a-Bookkeeper form to get a quick answer.
We work remotely with clients across the U.S. — no office visits, no stress. Just clean, reliable accounting you can count on.
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FAQ: Double Entry Accounting
Is double entry accounting required by law?
No, but it’s strongly recommended for any business that wants to produce professional financial statements or work with a CPA.
What software supports double entry accounting?
QuickBooks Online, Xero, Sage, and most modern accounting platforms use double entry accounting automatically.
Can I switch from single entry to double entry?
Yes, and we can help. Use our contact form to ask for help with your transition.
Is it safe to do my own double entry bookkeeping?
If you’re confident in your understanding and have time to stay consistent, yes. Otherwise, it’s smart to work with a certified bookkeeper to avoid costly mistakes.