When you start a small business, one of your first financial decisions should be whether you will use the bookkeeping once or twice. If finance is not your strong point, you may not be eager to deal with the accounting side of the business.
However, you need to know the basic terms and accounting methods needed for your business to understand the company's operations and financial problems that mislead the company to its further growth. In this article, we will introduce the “Double-Entry Bookkeeping’ term.
What is Double-Entry?
Double-entry bookkeeping is based on the idea that each transaction has an equal but opposite effect. Every accounting event must be entered in ledger accounts both as a debit and as an equal but opposite credit.
For instance, let's say you buy $ 1000 of inventory for your business with a debit card. To record a transaction, you will cash $ 1000 and debit the inventory with the same amount. In T account, that would look like this:
Double-entry bookkeeping is the method used to transfer the weekly/monthly totals from the books of prime entry into the nominal ledger. And it is the method by which business records financial transactions. An accountant is maintained for every asset, liability, income, and expense. Every transaction is recorded twice so that every debit is balanced by a credit
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The rules of double-entry bookkeeping:
A debit entry will:
Increase an asset
Decrease a liability
Increase an expense
A credit entry will:
Decrease an asset
Increase a liability
Increase an income
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