At Woovi, ensuring the accuracy of our numbers is crucial. Even the slightest mistake can cause irreparable damage. For this reason, we have a robust ledger system at our core.
If at any point in your career you find yourself working in a place that deals with numbers, you will undoubtedly come across the terms Double Entry Accounting and Ledger. But what exactly do they mean?
A ledger refers to the Book of Accounts, which is responsible for keeping track of all transactions. The accounts represent the 'where' of the debit or credit event.
One of the biggest misconceptions surrounding ledgers is the idea that all the accounts within a ledger are bank accounts. This is not true. While a bank account may use a ledger to keep track of its numbers, the ledger itself does not specifically concern bank accounts. Accounts within a ledger can be used to track virtually anything you want.
Another common misconception lies in the notion of double entry. Double entry transactions do not necessarily mean that there will always be exactly two entries within a transaction. Rather, it means that there will always be at least one Credit and one Debit within it. As long as the sum of credits and debits inside the transaction matches, it follows the rules of double entry accounting.
There is not a single correct way of representing something on a ledger; it all depends on your wants and needs. Let's look at how you can represent the same transaction in multiple ways using this example:
Suppose we have a lemonade stand in front of a shop. To let us stay on the sidewalk, this shop charges us 10% of each lemonade we sell, and we charge USD 300.00 for each drink. Yes, our lemonade is that good. So, how can we represent the sale of a drink on the ledger?
Both of these methods are correct ways to represent the sale of the drink on the ledger. It's all about what we want and need. Does it make sense for us to record the fees being paid by us separately? Will this number be useful for us in the future? It all depends on what and how you want to use the ledger.
Note that we have no mention of banks here. We have an account that tracks our earnings, one that tracks the small shop earnings, and one to represent the buyer. Do you want to know your earnings by customer? Create an account for each of them! Accounts on the ledger are nothing special; they're just another row on a database.
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