What is double-entry bookkeeping?
Double-entry bookkeeping is an accounting method to balance a business' books. For every journal entry credit (recorded under the company's equity side), there is an equal journal entry debit (recorded under the company's assets side.)
All credit and debit entries are categorized using a Chart of Accounts.
Purpose of Double-Entry Bookkeeping
The purpose and goal of double-entry bookkeeping is to enter financial transaction records so that when financial statements and reports are run, the company's assets are equal to its liabilities plus owners' equity (net worth). This formula is expressed in accounting terms as:
Assets = Liabilities + Owners' Equity (Net Worth)
How Entries Are Made Using the Double-Entry Accounting Method
The first entry shows a change on the assets side - the debit entry.
The second entry shows a change on the equities side - the credit entry.
The double-entry method can be very confusing at first but when entries are properly recorded the account books will balance because the total of all credit entries will be equal to the total of debit entries.
The double-entry accounting method is used by most businesses throughout the world. However, some businesses that have strictly cash transactions may use the single entry bookkeeping method instead. The single bookkeeping method records entries once and is an accounting method much like they way people record checks and deposits in a checking account register.