What is bookkeeping?
Bookkeeping is, by definition, keeping accounts. In short, it is the registration of financial transactions in a bookkeeping system to analyze and manage a company’s finances.
It is essential that bookkeeping is done correctly, as there are several requirements and regulations that must be followed. If not done correctly, one may risk getting a fine from the authorities
You can digitize and automate your expense management process with Acubiz
Digitizing and automating your expense management process can result in a more efficient and accurate bookkeeping. Company cards for employees can also be relevant in relation to your bookkeeping.
In bookkeeping, all expenses and payments associated with a company’s accounts are registered systematically, and bookkeeping is, therefore, central to the operation of a business.
All transactions must be documented to the authorities, and it is a requirement to have receipts for all of them. In addition, all transactions – i.e., purchases and sales – must be recorded with details such as date and amount.
Double entry bookkeeping
Double-entry bookkeeping, also known as double accounting, is a term that covers the type of bookkeeping where each transaction is recorded twice. This means that the same amount is registered in both debit and credit.
This is done to maintain a balance in the accounts.
When using this method, equal balances must be used on both the debit and credit sides for the accounts to balance. The debit balance and credit balance must therefore show the same amount.
Debit and credit are bookkeeping terms that show each side of the balance:
- Debit is when money is deposited into an account.
- Credit is when money is withdrawn from an account.
This balance and the profit and loss statement are used in the company’s annual account.
Although double-entry bookkeeping is not a legal requirement, most companies today use this type of bookkeeping.
Bookkeeping of VAT
An essential part of double-entry bookkeeping is the bookkeeping of VAT, as it involves registering and controlling all transactions related to VAT payments.
Companies must pay VAT to the government when they purchase goods. When the company sells, it can deduct the previously paid VAT. It is crucial to account for VAT correctly because it can affect the company’s financial position.
In the worst case, it can lead to fines or sanctions from the tax authorities if VAT bookkeeping is not done correctly.
Double-entry bookkeeping is not a requirement, but...
As a company, you can choose your preferred method of bookkeeping. The most important thing is that you, of course, comply with the accounting act.
Double-entry bookkeeping is not a legal requirement, so you decide which method to choose. Despite this, double-entry bookkeeping is actually the method that most companies use and prefer today.
An example of double-entry bookkeeping
A company purchases goods for its inventory at a value of 10,000 DKK. In the transaction to the supplier, the company debits the account “purchases of goods” with 10,000 DKK and credits the account “suppliers” with the same amount.
As a result, the transaction is registered both as a debit entry on the “purchases” account and as a credit entry on the “suppliers” account. This ensures that the debit and credit are in balance.
A company often has multiple accounts and transactions recorded in a bookkeeping system, but the above example illustrates the principle of double-entry bookkeeping.
What you need to be aware of:
When a bookkeeper in a company uses double-entry bookkeeping as a method, they must determine the type of posting involved and which accounts to use. This applies every time there is a transaction in the company.
The entry type for each posting is crucial to whether the bookkeeper should use debit or credit. But a posting is created every time a credit or debit is made.
As a bookkeeper, it is, therefore, always a good idea to keep an eye on the sum of debit and credit to ensure they always match. If the debit and credit balance matches, everything is as it should be
Advantages of double-entry bookkeeping:
There are several advantages to double-entry bookkeeping that may explain why most companies use it. Most advantages come from registering each transaction as a debit and credit entry.
Here is a brief overview of the advantages:
- Gives you an accurate picture of the company’s financial position
- Protects against errors
- Makes it easier to audit and uncover any errors or fraud
- Easier to understand
- Provides good documentation that can be used as a reference in the future
As there are many receipts and documents to keep track of, bookkeeping can easily become messy. You can use digital bookkeeping to ensure the accounts are done correctly. Here you get a bookkeeping program that contains valuable information about the company’s finances and accounts.
Furthermore, a bookkeeping program will help you keep track of all the receipts necessary to document your company’s transactions. It will also ensure that the bookkeeping is done with the correct VAT rate and the correct expense account, so you can be sure that the balance is maintained.
Bookkeeping saves two to three days per month:
By optimizing the process of expenses and disbursements, Alm. Brand has experienced that their bookkeeper saves two to three days per month. They use Acubiz, where the process is now easy and convenient for employees, approvers, and the finance department.
Do you want to know more?
If you want more knowledge about expense management, you can read about how Alm. Brand uses Acubiz to optimize their expense processes. Or why your bookkeeping practice is important.
If you need further help, we are also available to provide advice and guidance on all processes related to your expense management. Our entire Acupedia is filled with financial management and bookkeeping concepts that you can dive into and learn more about.