What Is Double-Entry Bookkeeping?
Double-entry bookkeeping is the accounting method where every transaction is recorded in at least two accounts — a debit in one and a matching credit in another. This keeps the accounting equation (Assets = Liabilities + Equity) always in balance.
Double-entry bookkeeping records every transaction twice — as a debit in one account and an equal credit in another — so total debits always equal total credits.
- •Increases assets
- •Increases expenses
- •Decreases liabilities
- •Decreases equity
- •Increases liabilities
- •Increases equity
- •Increases revenue
- •Decreases assets
Step-by-step worked examples
A business buys $5,000 of equipment with cash. Record the double entry.
Debit Equipment $5,000 (asset increases) Credit Cash $5,000 (asset decreases) Total debits = total credits = $5,000
A company takes a $20,000 bank loan, deposited into its checking account.
Debit Cash $20,000 (asset increases) Credit Loans Payable $20,000 (liability increases) Both sides recorded, equation stays balanced
A shop sells $1,200 of goods for cash.
Debit Cash $1,200 (asset increases) Credit Sales Revenue $1,200 (equity increases via revenue) Debits = Credits = $1,200
Flashcards
Quick quiz
Q1.In double-entry bookkeeping, every transaction affects how many accounts?
Q2.A debit to Cash means cash…
Q3.If total debits are $10,000, total credits should be…
Q4.Which is a credit-increasing account?
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Common mistakes
Thinking 'debit' always means a decrease. — Correct: Debit means the left side of an entry — it increases assets/expenses but decreases liabilities/equity.
Recording a transaction in only one account. — Correct: Every transaction needs at least one debit and one matching credit.
Assuming debits and credits refer to good/bad money. — Correct: They're just accounting positions (left/right), not judgments about the transaction.
Forgetting that revenue is a credit-side account. — Correct: Revenue increases equity and is recorded as a credit, like liabilities and equity.
FAQ
What is double-entry bookkeeping?
An accounting method where every transaction is recorded as a debit in one account and an equal, offsetting credit in another.
What is the double-entry bookkeeping rule?
Total debits must always equal total credits, keeping Assets = Liabilities + Equity in balance.
Can you give a double-entry bookkeeping example?
Buying $5,000 equipment with cash: debit Equipment $5,000, credit Cash $5,000.
Why do businesses use double-entry bookkeeping?
It catches errors automatically (debits ≠ credits signals a mistake) and gives a complete financial picture.