Double entry bookkeeping refers to the recording of financial transactions as a 'double entry.' Every transaction a firm engages in has two equal and opposite effects in at least two accounts of a firm's financial statements. It is the basis for the Accounting concept: Assets = Liabilities + Shareholder's Equity. It uses debits and credits in recording transactions.
Advantages of this method include:
1. It allows for a clear and easy check on whether or not transactions were recorded correctly since total debits must equal total credits.
2. It is more efficient for tracing errors.
3.Balance sheet information is always up to date and the method ensures that detailed information on transactions is available throuhout the year
4. Firms that hire an accountant to prepare their financial statements can benefit from lower accounting fees because it will be easier for the accountant to use double-entry records to prepare statements
1. It is more complicated to understand, and firms without someone who has the expertise to practice it may have to outsource the task making it more costly for them
2. It requires more time to perform