What Is Double-Entry Bookkeeping? Examples and how it works

Single-entry bookkeeping

In a single-entry system, each transaction is recorded as a single entry, typically in a cash book or a spreadsheet. This method is simple and often used by small businesses or sole proprietors with minimal transactions.

Pros:

• Easy to use and set up
• Requires less time and fewer resources
• Perfect for small enterprises with basic financial structures

Cons:

• Doesn’t provide a complete financial picture
• Prone to errors and harder to catch mistakes
• Difficult to track assets, liabilities, and equity

Double-entry bookkeeping

On the other hand, the double-accounting system involves recording each transaction in two accounts—both a debit and a credit. This helps balance your books and gives a more comprehensive view of your finances.

Pros:

• Gives you a more accurate view of your financial situation
• Reduces errors by balancing debits and credits
• Tracks assets, liabilities, and equity for better decision-making

Cons:

• Requires more time and effort to maintain
• More complex, especially for beginners
• Often needs accounting software or professional help

While single-entry bookkeeping might be enough for a very small business, most companies opt for the double-entry system in accounting because it offers more accuracy and insight. It’s essential for growing businesses that need detailed financial reports, compliance with accounting standards, and long-term stability.

The double-entry method is helpful for businesses interested in scaling or attracting outside investment. This system provides a complete, accurate view of your financial health—making it easier to manage growth and demonstrate financial stability to investors.

Businesses that should use double-entry bookkeeping

While single-entry bookkeeping can work for very small businesses, the double-entry method is a smarter choice for most companies. Here are some types of businesses that benefit most from using the double-entry system:

Growing businesses

As your business adds new customers, products, or locations, your finances naturally get more complicated. Double-entry bookkeeping makes it easier to track multiple income streams, manage expenses, and monitor assets and liabilities—all without losing control.

Businesses seeking funding or investment

If you plan to apply for a small business loan or attract investors, you’ll need solid, accurate financial records. Double-entry bookkeeping supports detailed reports like balance sheets and profit and loss statements, which are exactly what decision-makers want to see.

Businesses with employees or payroll

Managing payroll involves various expenses, tax withholdings, and liabilities. A double-entry system helps you stay compliant and ensures your wage-related accounts stay balanced.

Inventory-based or asset-heavy businesses

If your business buys, sells, or holds physical inventory or owns major assets like equipment or vehicles, you'll want to track how those values change over time. With double-entry accounting, you can easily track your assets, monitor depreciation, and stay on top of the cost of goods sold (COGS).

Corporations and partnerships

Because of their structure, these businesses must follow stricter financial reporting rules. Double-entry accounting supports both Generally Accepted Accounting Principles (GAAP) and IRS standards.

How to record transactions with a double-entry accounting system

Setting up a double-entry bookkeeping system is a straightforward yet powerful way to manage your finances. Follow these steps:

Choose your accounting method 

Decide between cash or accrual accounting. Cash accounting records transactions when cash changes hands, whereas accrual accounting records transactions as they occur, regardless of the cash flow.

Select accounting software or a ledger

Choose an accounting software solution or set up a physical ledger that supports double-entry bookkeeping. Make sure it allows for tracking of debits and credits.

Create accounts

Set up the necessary accounts based on the accounting equation. Common accounts include cash, accounts receivable, inventory, accounts payable, and revenue.

Develop a chart of accounts

Organize your accounts into a chart that outlines the account types so it’s easier to record transactions and generate reports.

Record transactions

Begin entering transactions using the double-entry system, ensuring that each entry includes both a debit and a credit to maintain balance.

Double-entry bookkeeping examples

Suppose a business sells $1,000 worth of products for cash. In double-entry bookkeeping, this transaction has two parts: debit the cash account by $1,000 (increasing assets as cash comes into the business) and credit the sales revenue account by $1,000 (reflecting income earned.)

 This entry increases both assets (cash) and revenue, showing the impact of the sale on financial health.

Similarly, if a business takes out a $10,000 loan, the transaction would be recorded by debiting the Cash account by $10,000 (increasing assets as funds are received) and crediting the loan payable account by $10,000 (recording a liability the business must repay). 

Both cases reflect an increase in cash available while recording the obligation to repay the loan, keeping the accounts balanced.

If you’re still unsure about double-entry bookkeeping, consider hiring a professional who can help implement this system effectively—bookkeeper costs can vary.

How to get started with double-entry bookkeeping

Ready to make the switch to double-entry bookkeeping? Whether you're starting fresh or upgrading from a simpler system, here’s how to start:

1. Choose your accounting method

First, choose whether to use cash basis or accrual accounting.

• Cash basis means you record income and expenses only when money changes hands.
• Accrual basis means you record income when it’s earned and expenses when they’re incurred, even if payment hasn’t occurred yet.

The IRS allows most small businesses to choose either method, but double-entry works more naturally with accrual accounting, which offers a clearer long-term financial picture.

2. Pick a bookkeeping system or software

You can manage double-entry bookkeeping manually using spreadsheets or ledgers, but most businesses prefer accounting software like QuickBooks, which automates much of the process. It also helps reduce human error and saves time on data entry, reporting, and reconciliation.

3. Set up a chart of accounts

Your chart of accounts is the foundation of your bookkeeping system. It’s a categorized list of all the accounts you use to record business transactions—e.g., cash, accounts payable, sales revenue, and operating expenses. When you set it up correctly from the start, you ensure every transaction lands in the right place.

4. Record transactions using debits and credits

Each time you enter a transaction, record the debit and credit to the appropriate accounts. For example, if you buy office supplies with cash, you debit the Supplies Expense account and credit Cash.

5. Reconcile regularly

Reconciliation means checking your books against bank statements or other records to ensure everything lines up. This step helps you catch errors early and keeps your financial reports trustworthy.

6. Review reports and make adjustments

Take a look at your financial reports—e.g., balance sheet or profit and loss statement—to see how your business is really doing. Because double-entry bookkeeping keeps your records balanced, those reports are more reliable and give you clearer insights to help you make smart decisions.

Spend more time growing your business

Now that you have a solid understanding of double-entry bookkeeping and its benefits, it’s time to focus on what truly matters: Growing your business. 

Managing your financial records can be time-consuming, but it doesn't have to be. By outsourcing bookkeeping, you can free up valuable time and resources, allowing you to concentrate on expanding your operations and serving your customers.

You can also use accounting software, such as QuickBooks Online Advanced, which simplifies your financial processes and provides real-time insights into your business performance. This will not only improve accuracy but also enhance your decision-making capabilities.