Double-Entry Bookkeeping
BeginnerDouble-entry bookkeeping is a system in which every transaction is recorded in at least two accounts, with equal debits and credits, so that the books always balance.
Every transaction has two sides. When a business buys equipment for cash, it gains equipment and loses cash. When it takes a loan, it gains cash and gains a debt. Double-entry bookkeeping records both sides of each event.
Each account has a debit side and a credit side. For every transaction, the total debits must equal the total credits. If a shop buys stock for 1,000 on credit, it records a debit of 1,000 to inventory, because an asset increases, and a credit of 1,000 to accounts payable, because a liability increases.
Because both sides are always recorded, the accounting equation, assets equal liabilities plus equity, stays in balance after every transaction. Adding up all debits and all credits in a trial balance is a quick way to spot many recording errors.
Double-entry bookkeeping has been used for centuries and remains the basis of all modern accounting software. It makes records more complete and reliable than simply listing money in and money out, and it allows full financial statements to be produced from the records.
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