What is double entry bookkeeping

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what is double entry bookkeeping

Double Entry Accounting - Concept Explanation and Examples

All businesses, whether they use the cash-basis accounting method or the accrual accounting method, use double-entry bookkeeping to keep their books. Double-entry accounting is a practice that helps minimize errors and increases the chance that your books balance. This method gets its name because you enter all transactions twice. In order to adjust the balance of accounts in the bookkeeping world, you use a combination of debits and credits. The only definite thing when it comes to debits and credits in the bookkeeping world is that a debit is on the left side of a transaction and a credit is on the right side of a transaction. This transaction actually has two parts: You spend an asset — cash — to buy another asset — furniture. In this transaction, you record the accounts impacted by the transaction.
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Free Online Bookkeeping Course #7 - Double Entry Bookkeeping System

Double-entry bookkeeping system

Double entry, a fundamental concept underlying present-day bookkeeping and accounting, states that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the accounting equation :. With a double entry system, credits are offset by debits in a general ledger or T-account. In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. The double-entry system of bookkeeping or accounting makes it easier to prepare accurate financial statements and detect errors.

Double-entry bookkeeping , in accounting , is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. The double-entry has two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-hand side is credit. In a normally debited account, such as an asset account or an expense account, a debit increases the total quantity of money or financial value, and a credit decreases the amount or value. On the other hand, for an account that is normally credited, such as a liability account or a revenue account, it is credits that increase the account's value and debits that decrease it. In double-entry bookkeeping, a transaction always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. This is to keep the accounting equation below in balance.

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To accurately reflect a company's financial position, the two sides of this equation must always stay in balance. -

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