2

This is a naive question but I'm trying to understand accounting.

I've read online that one of the purposes of double entry accounting is to allow checking for errors.

The only type of error that can be checked for that I see is when you enter different amounts in debit and credit or enter only one of them. Was it initially adopted because people wrote everything by hand so if they wrote an amount twice and made a mistake once then the double entry would reveal that? I don't see how this can be relevant today when everything is done electronically.

I know that it also somehow makes reporting easier but this is a different purpose.

Edit: In my understanding in the electronic accounting the error checking purpose is irrelevant because it will always match because it is checked at the time of entry. (So I suppose I'm asking from the user perspective.)

closed as off-topic by Dheer, littleadv, user32479, JohnFx Jan 20 '16 at 18:40

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "Questions about accounting are off-topic unless they relate directly to personal finance or investing from an individual's perspective." – Dheer, littleadv, Community, JohnFx
If this question can be reworded to fit the rules in the help center, please edit the question.

  • Could you be clearer about what electronic alternative you want to compare double entry accounting to? It seems to me, if you're asking about error checking with respect to an electronic system, either (a) you're asking about the benefits for the programmer of the system, or (b) you're asking on behalf of the user, so reporting actually could be relevant, because that's a way in which the user interacts with the system—the user can compare reports to other sources of information to check for errors. – Dan Getz Jan 20 '16 at 15:15
  • As for the history, according to Wikipedia a form of double-entry bookkeeping was used as far back as the 7th century, so I'm sure the entries were written by hand. – Dan Getz Jan 20 '16 at 15:15
  • See my edit above. – axk Jan 20 '16 at 15:38
  • Double accounting allows for easier balancing and sourcing of transactions. For each credit there must be a debit, and you know exactly where the money came from and where it went. – littleadv Jan 20 '16 at 17:01
3

In my understanding in the electronic accounting the error checking purpose is irrelevant because it will always match because it is checked at the time of entry.

As a professional programmer, I have to say that your trust in the perfection of software systems is misplaced. Software can and does contain bugs which allow incorrect data to be entered, or even actively cause corrupt data.

Another very important factor is errors that are not coincidence but deliberate, i.e. fraud and embezzlement.

Doubly-entry accounting makes it possible to find and correct wrong transactions retroactively. The important property is that in any transaction, you always know where the money came from.

  • I agree software has bugs, but if it's a bug it can be anywhere so it can be that it would record both debit and credit erroneously. As to deliberate fraud this is interesting, a naive question would be: what would prevent them from deliberately entering an incorrect amount for both debit and credit and how would having 2 records instead of 1 help catching this? different people responsible for each of the 2 records? – axk Jan 20 '16 at 16:26
  • @axk just because there could be other bugs it can't catch doesn't mean it's useless to catch the bugs that it can. Extra checks can't hurt, esp. because these programs answer to human institutions—they need to get the same answers that someone could get using a pen and paper would. – Dan Getz Jan 20 '16 at 17:57
  • @axk an example of fraud if you can record the records differently: record a $101 payment by adding $101 to the expense and removing $110 (whoops!) from petty cash. Now petty cash magically has $9 "too much". That's easy to fix! – Dan Getz Jan 20 '16 at 17:59
  • 1
    @axk The important part of this answer is the italicized part at the end. The double entry gives you the flow of the money through the books. Pre-computer it also played an important role in preventing errors, but you're correct that this part of it is probably less important these days. – user32479 Jan 20 '16 at 20:30

Not the answer you're looking for? Browse other questions tagged or ask your own question.