Double-entry accounting
Summary definition: An accounting method in which every financial transaction is recorded in at least two accounts as equal debit and credit entries.
What is double-entry bookkeeping?
Double-entry accounting (a.k.a. double-ledger accounting or double-ledger bookkeeping) is an accounting method in which every financial transaction is recorded in two accounts: one as a credit and one as a debit.
At the core of the double-entry bookkeeping system is the idea that every transaction affects more than one part of the business’s finances. For example, if a company purchases supplies with cash, one account’s balance increases (the expense account) while another decreases (the asset account).
Thus, double-ledger accounting ensures that a company’s books remain balanced, since the total debits equal the total credits for each transaction.
Key takeaways
- Double-entry accounting is an accounting method in which every financial transaction is recorded in at least two accounts as equal debit and credit entries.
- Each double-entry bookkeeping transaction affects multiple accounts (e.g., assets, liabilities, or expenses) in the organization’s general ledger to keep records balanced.
- This structure improves bookkeeping accuracy, simplifies error detection, and supports reliable financial statements.
Debit vs. credit accounting
Within double-entry accounting, a debit represents the acquisition or growth of something, while a credit represents the corresponding use or loss of something. Purchasing a car, for example, creates a debit in the company’s asset account (for the new item it acquired) and a credit in the company’s cash account (for the funds it spent).
Single-entry vs. double-entry accounting
Single-entry accounting records each transaction only once, typically as income or an expense. This method is often used by individuals or very small businesses with simple financial needs, as it focuses primarily on tracking cash flow rather than overall financial position.
In contrast, double-entry accounting bookkeeping records every transaction in at least two accounts, capturing both sides of the activity. This approach provides a more complete view of financial information by tracking assets, liabilities, and equity.
Because single-entry accounting doesn’t automatically balance accounts, it offers limited error detection and doesn’t support full financial statements, such as a balance sheet. Double-entry accounting, on the other hand, includes built-in checks and balances, making it easier to identify errors and maintain accurate records.
Double-entry bookkeeping system account types
There are several types of accounts that double-entry bookkeeping tracks to record financial activity.
| Account type | Description | Examples |
| Assets | Represent what a business owns and controls that has economic value. |
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| Liabilities | Track what a business owes to others. |
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| Equity | Show the owner’s or shareholders’ interest in the business after liabilities are deducted from assets. |
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| Revenue | Record income earned from normal business operations. |
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| Expense | Capture the costs required to operate the business. |
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How the double-entry system of accounting works
The double-entry accounting system follows a structured process for recording and organizing financial transactions.
- Identify the transaction: Determine the financial activity that occurred, such as a purchase, payment, or sale, and note the transaction amount and date.
- Determine the affected accounts: Identify which accounts are impacted by the transaction.
- Decide how each account changes: Determine whether each account increases or decreases as a result of the transaction.
- Record the debit and credit: Enter the transaction into the general ledger using at least one debit and one corresponding credit. The total debits must always equal the total credits.
- Review and post the entries: Verify the entries are balanced and accurate before posting to ensure reliable financial records.
- Prepare financial statements: Recorded transactions are later summarized to produce financial statements, such as the balance sheet, that provide insight into the organization’s financial position.
Double-entry accounting examples
A simple double-book entry example is an office using $500 in cash to purchase office supplies. In this scenario, the office’s expense account is debited $500 while its asset account is credited the same amount.
| Date | Account type | Debit | Credit |
| June 15 | Expense | $500 | - |
| June 15 | Asset | - | $500 |
In other words, the office’s expense account increased by $500 while its asset account decreased by the same margin. Because the total debits equal the total credits, the transaction remains balanced.
Double-entry accounting advantages
By recording both sides of every transaction, double-entry bookkeeping helps keep accounts balanced while making errors easier to spot and correct. This built-in precision ensures a more complete view of financial activity.
As a result, businesses can produce dependable financial statements, including the balance sheet and income statement, with greater confidence. Over time, these detailed records provide clearer financial insight, supporting better decision-making and allowing the accounting system to scale smoothly as a business grows.
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