What does Double-entry Bookkeeping Mean?

Double-entry bookkeeping refers to commercial bookkeeping in accordance with Section 238 of the Commercial Code. It is possible to determine the profit for the period on the one hand using the balance sheet and on the other hand using the income statement. Business transactions are recorded in the account and contra account.

Standard chart of accounts

Standard chart of accounts 3 (SKR03)

Standard chart of accounts 4 (SKR04)

Standard chart of accounts 7 (SKR07), Austria

The double-entry bookkeeping procedure

According to ยง 242 III HGB, companies are obliged to keep double bookings. With double-entry bookkeeping, the assets and debts of a company can be made visible. All business transactions are recorded with documents and posted to at least two accounts. For double-entry bookkeeping, different accounts are required, which are specified in a chart of accounts for medium-sized and large companies. Smaller companies are now also using such charts of accounts. A journal, known as the land register, as well as the general ledger and sub-ledgers must be kept for posting to these accounts. The principles of proper bookkeeping, GoBD for short , must be observed.

Organization of receipts

According to GRADPHYSICS.COM, each business transaction must be assigned a document on which the chronological sequence, value and responsibility of the business transactions are recorded. A distinction is made between internal and external documents. Internal documents can be payrolls, receipts for private withdrawals and deposits or material withdrawal slips. External documents can be incoming and outgoing invoices, delivery notes or bank statements. Every reference in a document must be verifiable. The receipts must be numbered and the statutory retention periods must be observed. The documents must be filed and sorted according to subject criteria. If an original receipt is lost, a replacement receipt must be issued that contains the details of the original receipt. The receipts must be for accounting are prepared, then they are recorded and filed in the land register and general ledger.

Organization of the books

According to Section 238 of the German Commercial Code (HGB), a merchant must keep records of his commercial transactions, assets and debts. A distinction is made between the general ledger, land registers and subsidiary ledgers. All G / L accounts are contained in the general ledger, the financial statements result in the balance sheet and the profit and loss account. All G / L accounts from the postings in the land register are transferred to the general ledger. Land registers serve as a template for postings in the general ledger. For the design of the accounts in the general ledger, joint accounts, industrial accounts or standard accounts are used as templates. For optimal bookkeeping, apply to the chart of accounts industry-specific differences. The land register is also known as the journal and is used to keep track of the documents. It is structured chronologically and contains information on the business transactions:

  • Date
  • process
  • Note on the process
  • Account and contra account
  • Amount

Several land registers are kept in a company, including incoming and outgoing invoices as well as cash books. The postings in the land register and general ledger are supported by the sub-ledgers. Reference is made to the sub-ledgers in the land and main ledgers. Such sub-ledgers can be a ledger with incoming and outgoing goods or a current account ledger with accounts of suppliers and customers with account balances .

Forms of accounting

The types of bookkeeping can be divided into conventional bookkeeping methods and computerized methods. The IT-supported methods are pushing the conventional methods further and further into the background. Conventional methods are only used in smaller companies and include carbonless books, open-line bookkeeping and hardback books. In the case of the bound books, a distinction is made between the German, French, English, Italian and American methods. The multiple transfer of land registers to the general ledger results in many transfer errors. Open item accounting is often used in accounts receivable and accounts payable used. All incoming invoices that have not yet been paid are collected in a file and sorted by customer and supplier. The paid items are recorded in another file. Two copies of incoming and outgoing invoices must be made. One copy replaces the current account, the other copy is a replacement for the journal. This method can be combined with other methods and is also used in IT bookkeeping. In the EDP bookkeeping, documents are recorded simultaneously, the error rate is significantly lower. The receipts must be entered individually, they are saved and processed in the IT system. An extended control system is required for the EDP system in order to check the completeness of the entries.

Double-entry Bookkeeping