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Double Entry Definition
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Guide to Accounting
Explore The Guide
Accounting Basics
Accounting Equation
Expense
Current and Noncurrent Assets
Accounting Theories and Concepts
Accounting Theory
Accounting Standard
Accounting Convention
Principles-Based vs. Rules-Based Accounting
Accounting Methods: Accrual vs. Cash
Accounting Method
Accrual Accounting
Cash Accounting
Accrual Accounting vs. Cash Basis Accounting
Accounting Oversight and Regulations
Generally Accepted Accounting Principles (GAAP)
International Financial Reporting Standards (IFRS)
IFRS vs. GAAP
US Accounting vs. International Accounting
Understanding the Cash Flow Statement
Breaking Down The Balance Sheet
Understanding the Income Statement
Financial Accounting and Decision-Making
Financial vs. Managerial Accounting
Public Accounting: Financial Audit and Taxation
Accountant vs. Financial Planner
Accounting Systems and Record Keeping
Chart of Accounts (COA)
Double Entry
Closing Entry
Introduction to Accounting Information Systems
Accounting for Inventory
Inventory Accounting
Last In, First Out (LIFO)
First In, First Out (FIFO)
Average Cost Method
What Is Double Entry?
Double entry, a fundamental concept underlying present-day bookkeeping and accounting, states that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the accounting equation:
 Assets = Liabilities + Equity \begin{aligned} &\text{Assets} = \text{Liabilities} + \text{Equity} \\ \end{aligned} ​Assets=Liabilities+Equity​
With a double entry system, credits are offset by debits in a general ledger or T-account.
The Basics of Double Entry
In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. The double-entry system of bookkeeping standardizes the accounting process and improves the accuracy of prepared financial statements, allowing for improved detection of errors.
Bookkeeping and accounting are ways of measuring, recording, and communicating a firm's financial information. A business transaction is an economic event that is recorded for accounting/bookkeeping purposes. In general terms, it is a business interaction between economic entities, such as customers and businesses or vendors and businesses.
Under the systematic process of accounting, these interactions are generally classified into accounts. There are seven different types of accounts that all business transactions can be classified:
Bookkeeping and accounting track changes in each account as a company continues operations.
Debits and Credits
Debits and credits are essential to the double entry system. In accounting, a debit refers to an entry on the left side of an account ledger, and credit refers to an entry on the right side of an account ledger. To be in balance, the total of debits and credits for a transaction must be equal. Debits do not always equate to increases and credits do not always equate to decreases.
A debit may increase one account while decreasing another. For example, a debit increases asset accounts but decreases liability and equity accounts, which supports the general accounting equation of Assets = Liabilities + Equity. On the income statement, debits increase the balances in expense and loss accounts, while credits decrease their balances. Debits decrease revenue and gains account balances, while credits increase their balances.
The Double-Entry Accounting System
Double-entry bookkeeping was developed in the mercantile period of Europe to help rationalize commercial transactions and make trade more efficient. It also helped merchants and bankers understand their costs and profits. Some thinkers have argued that double-entry accounting was a key calculative technology responsible for the birth of capitalism.
The accounting equation forms the foundation of the double-entry accounting and is a concise representation of a concept that expands into the complex, expanded and multi-item display of the balance sheet. The balance sheet is based on the double-entry accounting system where total assets of a company are equal to the total of liabilities and shareholder equity.
Essentially, the representation equates all uses of capital (assets) to all sources of capital (where debt capital leads to liabilities and equity capital leads to shareholders' equity). For a company keeping accurate accounts, every single business transaction will be represented in at least of its two accounts.
For instance, if a business takes a loan from a financial entity like a bank, the borrowed money will raise the company's assets and the loan liability will also rise by an equivalent amount. If a business buys raw material by paying cash, it will lead to an increase in the inventory (asset) while reducing cash capital (another asset). Because there are two or more accounts affected by every transaction carried out by a company, the accounting system is referred to as double-entry accounting.
This practice ensures that the accounting equation always remains balanced – that is, the left side value of the equation will always match with the right side value.
Double-entry refers to an accounting concept whereby assets = liabilities + owners' equity.
In the double-entry system, transactions are recorded in terms of debits and credits.
Double-entry bookkeeping was developed in the mercantile period of Europe to help rationalize commercial transactions and make trade more efficient.
The emergence of double-entry has been linked to the birth of capitalism.
Real World Example of Double Entry
A bakery purchases a fleet of refrigerated delivery trucks on credit; the total credit purchase was $250,000. The new set of trucks will be used in business operations and will not be sold for at least 10 years—their estimated useful life.
To account for the credit purchase, entries must be made in their respective accounting ledgers. Because the business has accumulated more assets, a debit to the asset account for the cost of the purchase ($250,000) will be made. To account for the credit purchase, a credit entry of $250,000 will be made to notes payable. The debit entry increases the asset balance and the credit entry increases the notes payable liability balance by the same amount.
Double entries can also occur within the same class. If the bakery's purchase was made with cash, a credit would be made to cash and a debit to asset, still resulting in a balance.
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Guide to Accounting Guide
Accounting Definition
What Is the Accounting Equation?
What Is an Asset?
What Is a Liability?
Equity Definition
Understanding Revenue
Expense Definition
Current and Noncurrent Assets: Knowing the Difference
What Are Accounting Principles?
What Is an Accounting Standard?
Accounting Policies Definition
The Difference Between Principles-Based and Rules-Based Accounting
What Is Accrual Accounting and Who Uses It?
Accrual Accounting vs. Cash Basis Accounting: What's the Difference?
IFRS vs. GAAP: What's the Difference?
How Does US Accounting Differ From International Accounting?
What Is an Accountant?
How Does Financial Accounting Help Decision-Making?
Understanding Corporate Finance
How Financial Accounting Differs From Managerial Accounting
What Is Cost Accounting?
Career Advice: Accountant vs. Financial Planner
Chart of Accounts (COA) Definition
How Double Entry Works
Breaking Down Debits
Credit: What Everyone Should Know
Closing Entry Definition
Understanding Invoices
Introduction to Accounting Information Systems – AIS
Inventory Accounting Definition
Average Cost Method Definition
How General Ledgers Work
A general ledger is the record-keeping system for a company's financial data, with debit and credit account records validated by a trial balance.
The accounting equation defines a company's total assets as the sum of its liabilities and shareholders' equity.
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS.
What Is Reconciliation in Accounting?
Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations.
What Is a Credit Ticket?
A credit ticket is an accounting or bookkeeping transaction that generates a credit in the general ledger. Learn how credit and debit tickets differ.
T-Account Definition
A T-account is an informal term for a set of financial records that uses double-entry bookkeeping.
What Is Double Entry Bookkeeping and How's It Fit in General Ledger?
How to Use Excel as a General Accounting Ledger
The Difference Between a General Ledger and a General Journal
How Did the Field of Accounting Evolve?
Corporate Finance & Accounting
Learn About the 8 Important Steps in the Accounting Cycle
How to Calculate Credit and Debit Balances in a General Ledger
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