Definition
Double-entry bookkeeping is the system of recording every transaction in at least two accounts, with total debits always equal to total credits. It keeps the accounting equation (assets equal liabilities plus equity) in balance after every entry, so errors surface in the trial balance instead of hiding in the books.
How it works
Every transaction has two sides: something comes in and something goes out, or a resource is matched by a claim on it. Buying a laptop for cash increases equipment and decreases cash; borrowing from a bank increases cash and increases a loan liability. Double entry records both sides on the same date, in the same entry, for the same amount.
The method matters because it is self-checking. If total debits do not equal total credits, something was keyed wrong, and the trial balance shows it at once. It also produces a full balance sheet and income statement from the same records, which single-entry cash books cannot do.
Common mistakes are posting both lines to the same side, splitting a transaction across two entries that are never matched, and using a suspense account to force a balance. Software that refuses to post an unbalanced entry removes the first two problems. The double-entry and journal entries guide covers the rules step by step.
Formula
Assets = Liabilities + Equity
Sum of debits = Sum of credits (for every entry)
Example: buying stock partly on credit
A shop buys goods worth 5,000. It pays 2,000 in cash and owes the supplier the remaining 3,000. Inventory (an asset) rises by 5,000; cash falls by 2,000 and accounts payable rise by 3,000. Debits and credits both total 5,000.
| Account | Debit | Credit |
|---|---|---|
| Inventory | 5,000 | |
| Cash | 2,000 | |
| Accounts payable | 3,000 | |
| Total | 5,000 | 5,000 |