What is the point and purpose of double-entry bookkeeping?

Question

I must be misunderstanding something when trying to research this topic because I genuinely do not understand to point of DE bookkeeping?

To me, DE shows the exact same information that single entry bookkeeping does. In single entry you have Debit (an expense) or Credit (an income) and for each purchase or income you write a single line with how much money is involved, and that number gets added or subtracted from the balance.

But from what I can tell, in DE bookkeeping, you write the exact same thing, but then you have a second line with the exact same amount in the other column. So for example if you make a purchase of $500 for books, in one line you write “Books | Debit: $500 | Balance: $XXXX” and then in a line immediately underneath it you write “Books | Credit: $500 | Balance: $XXXX” which all can be summarized in single-entry by saying “Books | -$500 | Balance: $XXXX”?

So other than maybe proof reading by “balancing the books” to make sure both columns add up to the same amount, I can’t or don’t understand if there’s any actual difference? Can anyone help?

In: Economics

Answer 1

> So other than maybe proof reading by “balancing the books” to make sure both columns add up to the same amount,

Yes, exactly that. Every item is accounted for, and then accounted for *again*. Keeping your accounting balanced may seem trivial for regular folks, but for businesses it can be a serious endeavor. Think of hundreds or *thousands* of entries, which can end up being pretty complicated. Like, consider accounts receivable, which is money you are owed but have not yet been paid – think, someone has contracted your factory to produce 1000 units and you’ve started production but they haven’t started paying you yet. But you can record that as an asset because they *must* pay you, it’s in a contract, and showing that asset can be important for a number of reasons, but nonetheless it’s still not money in your pocket.

You can imagine that when there’s millions of dollars being accounted for like this, money can get lost, stolen, forgotten…Double-entry accounting forces you to do all of the math to add up everything *twice*. And then it’s super easy to find if there’s an error because it should always always *always* add up to 0. Always. That way, you don’t have to think about, “How much money should I have? Is it $1,380,287? Or was it $1,382,870?” Doesn’t matter what the total is for your assets and liabilities – they balance to 0. If it *doesn’t* balance to 0, there’s a problem.