DOUBLE ENTRY BOOKKEEPING meaning, definition in Cambridge English Dictionary

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.

• With single entries, fraudulent activities become common, and tampering with the record is usual for companies.
• “It was just a whole revolution in the way of thinking about business and trade,” writes Jane Gleeson-White of the popularization of double-entry accounting in her book Double Entry.
• Use our balance sheet template in Excel to track your assets and liabilities.
• You will enter a date, a description, the amount of the transaction, and the balance in your records.

Credits and debits in double entry cannot be underemphasized. The double entry system of accounting is critical in ensuring all errors have been detected and financial statements of the business prepared accurately. The double-entry approach, in other words, was a response to merchants, bankers, and investors, who found simple cash basis accounting inadequate. They needed systems that support better forms of error-checking. They needed, moreover, systems that recognize transactions for acquiring assets, earning revenues, incurring expenses, creating debt, and owning equities. Expense accounts and asset accounts will increase when they are debited. In contrast, liability, equity, and revenue accounts increase when they are credited.

Double-entry bookkeeping

For example, if a restaurant purchases a new delivery vehicle for cash, the cash account is decreased by the cash disbursement and increased by the receipt of the new vehicle. This transaction does not affect the liability orequity accounts, but it does affect two different assets accounts. Thus, assets are decreased and immediately increased resulting in a net effect of zero. As you can see from the equation, assets always have to equal liabilities plus equity. In other words, overall debits must always equal overall credits. For example, if an asset account is increased or debited, either a liability or equity account must be increased or credited for the same amount.

This might seem a little confusing—but all you need to remember is that any transaction is both a credit and debit. Simple tools to send invoices, track expenses and manage your business finances. On the second day of the week you pay your rent, which is $1000. Since this is an expense, you double entry accounting subtract this amount from your cash balance. Free AccessProject Progress ProFinish time-critical projects on time with the power of statistical process control tracking. The Excel-based system makes project control charting easy, even for those with little or no background in statistics.

AccountingTools

When you generate a balance sheet in double-entry bookkeeping, your liabilities and equity (net worth or “capital”) must equal assets. In double-entry bookkeeping, debits and credits are terms used to describe the 2 sides of every transaction.