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Definition: Double-Entry Bookkeeping

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Definition of Double-Entry Bookkeeping

What is Double-Entry Bookkeeping?

Double-Entry Bookkeeping is the process of recording financial transactions in a Journal in chronological order. Each double entry in the journal is composed of two parts that much equal one another in value. For example, if Jess gave Kendra $750, the double-entry bookkeeping record would record Jess giving $750 and Kendra receiving $570. 
Image two parts of double entry bookkeeping
Each double-entry bookkeeping record is one part giving (credit) and one part receiving (debit). The bookkeeping term credit means the act of giving and the term debit means the act of receiving.

Double-Entry 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 = Received
$750 = $750 (correct)


Compare what you just learned with the following figure. What is wrong with it?
Picture
Let's write out the double-entry bookkeeping entry.

Double-Entry Journal Entry
Jess received/debit: $100
Kendra gave/credit: $50
​
Gave = Receive
$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 bookkeeping error which is why every journal entry in double-entry bookkeeping always contains two parts that must equal each other.

If you are wondering about the terms debit and credit, "debit" in double-entry bookkeeping means the "act of receiving" and "credit" in double-entry bookkeeping means the "act of giving".

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Practice Double-Entry Bookkeeping in a Bookkeeping Simulator

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Rather than just read about double-entry bookkeeping, practice double-entry bookkeeping in a hands-on accounting simulation. Learn more about our accounting simulation app and see what you can learn for free in the Addictive Accounting course.

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  • Home
  • Course Content
  • Accounting Simulator
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    • Definitions
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