Double-entry bookkeeping explained simply
To put it simply, double-entry bookkeeping stands for the recording of business transactions for companies that are subject to accounting. The respective business transactions are recorded twice on bookkeeping accounts. The posting takes place at the same time on two different accounts, whereby the balance is continuously updated. The mutual effect is also called double.
For a merchant, there is a double-entry bookkeeping obligation. Other groups of people like freelancer or small business owners may be able to use simple bookkeeping.
How double-entry bookkeeping can be explained simply
To put it simply, double-entry bookkeeping means recording each business transaction in two accounts. This happens once on the left and another on the right side of the corresponding account.
- For example, if you buy office supplies in a stationery store, record the purchase as an “expense or expense”. This form of recording is sufficient for simple bookkeeping.
- With double-entry bookkeeping, you consider a corresponding counterpart for each movement. Here it would be the cash register from which the money is withdrawn. A record is also kept of this.
- If you withdraw money from the current account, but do not put it in your cash register, this means that nothing is recorded in a pure expenditure / income analysis.
Many founders and self-employed are not obliged to double ...
Where this booking form is used
- Private corporations (legal form GmbH or AG) must operate double-entry bookkeeping. This obligation does not apply to individuals and public bodies. In the case of partnerships, this type of booking is also necessary from a certain size.
- Associations are not obliged under commercial law. Due to the proof of assets (accountability according to BGB), double-entry bookkeeping is still often used here.
- The alternative to double-entry bookkeeping is the revenue surplus calculation. Only the current expenses and income are noted here. There are no inventory accounts.
Strangely enough, the public sector and thus the legislature usually do not keep double bookkeeping themselves, which does not prevent them from imposing this on private companies. Which is explained by the fact that success is the basis of all taxation.
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