A Beginner’s Guide to Double-Entry Accounting

Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry to a different account. The double-entry system has two equal and corresponding sides known as debit and credit.

• In 2012, she started Pocket Protector Bookkeeping, a virtual bookkeeping and managerial accounting service for small businesses.
• Double-entry accounting allows you to better manage business-related expenses.
• DebitDebit represents either an increase in a company’s expenses or a decline in its revenue.
• One way to determine whether the software you’re considering is capable of double-entry accounting is to see if it can produce a balance sheet.
• By using double-entry accounting, you can be sure all of your transactions are following the rules of the accounting equation.
• The credit side is to the right, and the debit side is to the left.

Hence, the tax authorities trust and accept the method for tax purposes. However, a single entry accounting method is less trusted and not acceptable for tax computation by the authorities. The double-entry system requires a chart of accounts, which consists of all of the balance sheet and income statement accounts in which accountants make entries. A given company can add accounts and tailor them to more specifically reflect the company’s operations, accounting, and reporting needs.

How to get started with double-entry accounting

The total of both, debit and credit, must be equal for a transaction to be considered “balanced”. An important point to remember is that a debit or credit does not mean increase and decrease, respectively. However, a simple method to use is to remember a debit entry is required to increase an asset account, while a credit entry is required to increase a liability account. Contra liability accounts and contra expense accounts—like their contra asset counterparts—also reverse the debit/credit “rules” from the table in the previous section.

Once your https://quick-bookkeeping.net/ is set up and you have a basic understanding of debits and credits, you can start entering your transactions. Double entry refers to a system of bookkeeping that, while quite simple to understand, is one of the most important foundational concepts in accounting. Basically, double-entry bookkeeping means that for every entry into an account, there needs to be a corresponding and opposite entry into a different account.

How Does The Double Entry Accounting System Work?

Double-entry and single-entry bookkeeping are both practices used in accounting to record transactions and keep the company’s accounts up to date in the trial balance. Double-entry accounting refers to how business transactions are recorded in both debits and credits as separate accounts in the accounting ledger. In other words, double-entry accounting refers to a system where every transaction is recorded twice in the books of the company.

• For example, when you take out a business loan, you increase your liabilities account because you’ll need to pay your lender back in the future.
• The main purpose of a double-entry bookkeeping system is to ensure that a company’s accounts remain balanced and can be used to depict an accurate picture of the company’s current financial position.
• Even if your knowledge of accounting doesn’t extend beyond Accounting 101, you’ll find most accounting software applications easy to use.
• The double entry bookkeeping was introduced between the 13th and 14th centuries, and one of its first mentions is found in Luca Pacioli’s book, published in 1494.
• Each of these two-line entries is known as a general journal entry.