Definition: Double-Entry Accounting
What is Double-Entry Accounting?
Double-Entry Accounting is the process of recording financial transactions in a bookkeeping Journal in chronological order. Each double entry in the bookkeeping journal is composed of two parts that much equal one another in value. For example, if Jess gave Kendra $750, the double-entry accounting record would record Jess giving $750 and Kendra receiving $570.
Each double-entry accounting record is one part giving (credit) and one part receiving (debit). The accounting term credit means the act of giving and the term debit means the act of receiving.
Double-Entry Accounting Journal Entry
Jess gave/credit: $750
Kendra received/debit: $750
Notice that what Jess gave and what Kendra received must always be equal in value because if they were not, something would be unaccounted for.
Gave/credits = Received/debits
$750 = $750 (correct)
Compare what you just learned with the following transaction. What is wrong with it?
Double-Entry Accounting Journal Entry
Jess gave/credit: $750
Kendra received/debit: $750
Notice that what Jess gave and what Kendra received must always be equal in value because if they were not, something would be unaccounted for.
Gave/credits = Received/debits
$750 = $750 (correct)
Compare what you just learned with the following transaction. What is wrong with it?
Let's write out the double-entry accounting entry.
Double-Entry Accounting Journal Entry
Jess received/debit: $100
Kendra gave/credit: $50
Gave/credits = Receive/debits
$100 = $50 (error)
There is clearly a problem because if Kendra gave $100 and Jess only received $50, what happened to the other $50? This would be a double-entry accounting error which is not permitted in double-entry accounting as all journal entries must contain two parts that must equal each other, one part debit and one part credit.
Want to learn more, you can.
Double-Entry Accounting Journal Entry
Jess received/debit: $100
Kendra gave/credit: $50
Gave/credits = Receive/debits
$100 = $50 (error)
There is clearly a problem because if Kendra gave $100 and Jess only received $50, what happened to the other $50? This would be a double-entry accounting error which is not permitted in double-entry accounting as all journal entries must contain two parts that must equal each other, one part debit and one part credit.
Want to learn more, you can.
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