What is double-entry bookkeeping?
Double-entry bookkeeping is based on the idea that every transaction has two sides. If you buy equipment with cash, equipment increases and cash decreases. Each transaction is recorded as at least one debit and one credit of equal value. Formalised by Luca Pacioli in 1494, it remains the standard for business accounting worldwide.
The rules of debit and credit
See [debit and credit](/glossary/debit-and-credit) for the full rules. In short:
- Assets and expenses increase with a debit.
- Liabilities, equity and income increase with a credit.
Example
A business sells services for $1,000 on credit.
- Debit accounts receivable $1,000
- Credit service revenue $1,000
When the customer pays:
- Debit bank $1,000
- Credit accounts receivable $1,000
Benefits
- Keeps the [accounting equation](/glossary/accounting-equation) balanced.
- Produces a [trial balance](/glossary/trial-balance) where total debits equal total credits.
- Gives a complete record of both what changed and why.
- Makes full [financial statements](/glossary/financial-statements) possible.
Single-entry vs double-entry
Single-entry tracks only cash in and out, much like a chequebook. It can't produce a proper balance sheet and makes errors harder to find.