double entry

At the core of any accounting software is a bookkeeping system called double entry accounting. Double entry accounting simply means that any financial transaction has two equal and opposite sides to it. These two sides — debits and credits — must be recorded in two different general ledger accounts. Once you use double entry accounting, you’ll have a much more comprehensive view of your business that goes well beyond just knowing how much cash you have on hand.

For example, imagine that your small business recently received a loan from the bank in the amount of $10,000. If you used single entry accounting, you would simply mark down that you received $10,000 in cash. It’s just one single entry — “Cash.” However, if you use double entry accounting, you would realize that you would have to record this transaction in two separate accounts. The first account is “Cash,” an asset, which you would debit for $10,000. The matching account would be “Loans Payable,” a liability, which you would credit for $10,000.

Just from this example, you can immediately grasp why double entry accounting is more powerful than single entry accounting. It lets you keep track of your finances in a way that lets you know how the whole business is doing. It’s not just that you received cash, but that you now must pay a loan back. With single entry accounting, you’d be missing a big part of the puzzle.

And that’s the real advantage of using accounting software — it automatically takes care of this step for you. This saves you, the small business owner, a lot of time and hassle. Accounting software has built-in code that always ensures that the following equation always holds: Assets – Liabilities = Capital. In short, once you subtract all of your liabilities from all of your assets, you have the equity value of the business.

And it goes one step beyond this. That’s because double entry accounting helps to connect your balance sheet and your income statement. It also helps you produce the statement of cash flows, so that you can immediately see how cash is flowing in your business. This goes well beyond just tracking your expenses and revenue in an Excel spreadsheet and using manual account reconciliation. It means giving you a real-time look at how your business is performing. You can actually see where value is being created within your business.

In short, if you’re thinking about growing your business, it’s time to leave single-entry accounting behind and convert over to double-entry accounting. It gives you more insight into the way your business actually runs.

Spire takes advantage of double-entry bookkeeping, giving you financial and operational reporting capabilities, as well as automatic reconciliation with bank accounts. It lets you print out financial reports — balance sheets, income statements and cash flow statements — whenever needed.