Definition: Double-Entry Bookkeeping
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.
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?
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?
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".
Want to learn more, you can.
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".
Want to learn more, you can.
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