Why We Still Need To Understand Double-Entry Bookkeeping

“Why do we need to worry about the ins and outs, and the whys and wherefores of double-entry bookkeeping? Why should I care if an entry should be a debit or a credit? The computer takes care of all that boring stuff”, I heard a junior colleague of mine ask recently. “Goodness me, look how short-sighted you are”, I replied.

I continued…

“If you really want to be a successful accountant one day, you must understand every nuance of the fascinating subject of double-entry bookkeeping, despite all the help you are given by having access to all of today’s latest technology. You don’t need to understand how a car engine works to be able to drive, but if you have a reasonable understanding of how an engine operates, you will be a much better driver, than somebody who has not got a clue”.

Double-Entry Bookkeeping – The Ever Present Foundation

It is true that computer programs should be able to take care of the majority of day-to-day routine transactions, but situations frequently arise when anyone in an organization, from a financial director to a junior data-input clerk, may require to show they have, at least, a basic understanding of the principles of double-entry bookkeeping. Double-entry bookkeeping is a 500 year old system, which is still the basis of all manual and computerized accounting systems in use today. The most simple manual system used to record the transactions of a one-man operation, and the sophisticated computerized systems used by companies that are quoted on the New York Stock Exchange have one thing in common, and that is they are all based on the centuries old double-entry bookkeeping principles, invented in Italy, all those centuries ago.

However, notwithstanding the invention of the computer, here are a few reasons why it is still essential for everybody involved in record keeping to understand the basic principles of double-entry bookkeeping:

1) Not Every Enterprise Has A Computer

Many small operations try to make do either without regular record keeping, or make a mess of trying to maintain a manual system. Either of these scenarios can lead to:

  • Huge accountancy bills at the end of the Financial Year
  • Taxation liabilities that are larger than they need be.
  • Missing out on the opportunity of being able to maximize ones profitability and, just as importantly, enjoy a positive cash flow, by analyzing the data flowing from a properly maintained system.
  • However, it is still perfectly acceptable for any small business to keep a manual set of books, but the most

    important thing is…If you are going to do it, (i.e. stick to a manual system), do it RIGHT. This means that every successful small businessman or woman who decides NOT to computerize, must have at least a basic knowledge of double-entry bookkeeping.
2) Anybody Who Initiates A Computerized System Must Have An Extremely Good Knowledge Of Double-Entry Bookkeeping

Accounting errors made at this early stage, can, and will, lead to disastrous outcomes later on in the accounting cycle. Examples of errors that can easily be made by the uninitiated are:

  • Classifying an asset account as a liability account
  • Classifying an income account as an expense account
  • Mucking up the input of opening balances by not knowing which accounts should start with a debit balance and which should start with a credit balance
  • Not ensuring that subsidiary ledgers, like Debtors’ Ledgers and Creditor’s Ledgers balance with the main General Ledger
  • Not ensuring that the initial trial balance “squares”, that is the sum of the debit balances equals the sum of the credit balances, without the inclusion of “suspense” accounts, the origin of the balances of which are unknown.
3) Examples Of The Effects Of These Errors Could Be:
  • Losing control of debtors
  • Losing control of creditors
  • Getting the computer to produce inaccurate reports, which, because they were computer generated, everybody, from the managing director down, will assume to be the gospel truth.
4) Senior Accountants Must Have A Knowledge Of “What Should Be Where.”

Such knowledge will enable him or her to correctly analyze computer output, and spot inconsistencies, before preparing reports for more senior management. Some specific circumstances are:

  • Being able to consolidate reports of individual parts of the business into a single report reflecting the performance of the enterprise as a whole
  • Being able to produce Financial Accounts at the end of the Financial Year, that actually “balance”, and show a true and fair view of the enterprise’s performance
  • Being able to confidently discuss matters of concern with auditors, and, if necessary, be able to support the enterprise’s position in any dispute with auditors
5) Junior Accountants Must Have Good Bookkeeping Knowledge

This will enable them to input journal entries correctly to, maximize the benefit more senior employees and owners can extract from the general ledger. For example:

  • To correct obvious posting errors
  • To charge depreciation correctly
  • To make, and possibly reverse accruals
  • To enter and reverse prepayments.
  • To ensure sub-ledgers agree with their corresponding balance in the general ledger.

The list could go on forever.

6) Finally Computer Operators Would Be Able To Do Their Job Much More Effectively And Accurately

The best computer operators have at least a basic knowledge of the workings of double-entry bookkeeping, which gives them if the understanding of what the computer is doing “behind the scenes”. This is much better than blindly following a manual.


These are just some of the reasons why, even in today’s technological age, a knowledge of the concepts of double-entry bookkeeping is as important to all people who work in the field of finance as it ever was before the advent of computers. To sum up, the conception that computerization has spelled the beginning of the end of the art of double-entry bookkeeping is a misconception. Do you agree?

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Copyright © 2015 to the present day, Phil Ramage of International Internet Icons

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