Double-Entry Bookkeeping
An accounting system where every transaction affects at least two accounts, with debits equaling credits.
Double-entry bookkeeping records every financial transaction in at least two accounts—one debited and one credited—ensuring the accounting equation always balances. This method, formalized in 1494, provides a built-in error detection mechanism: if total debits don't equal total credits, something has been recorded incorrectly.
Example
A graphic designer pays $500 for a new tablet—equipment is debited $500 (asset increases) and cash is credited $500 (asset decreases), both sides balance.
Why It Matters for Your Business
Double-entry bookkeeping catches errors automatically because the books must balance, and it's the standard expected by accountants, lenders, and the IRS.
Practical Tips
- •Use accounting software that enforces double-entry automatically—manual ledgers are error-prone.
- •Learn the basic debit/credit rules for each account type even if software does the heavy lifting.
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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