The double-entry bookkeeping system is a method of accounting that records transactions as both debits and credits. In other words, for each transaction, there are two entries: one that records the asset or liability increase (debit), and one that records the offsetting decrease in another asset or liability (credit). This system provides a more complete picture of a company’s financial position than the single-entry system.
The double-entry bookkeeping system is named for the two entries (or “sides”) made for each transaction. The left side of the ledger is called the debit side, while the right side is called the credit side. Each entry must equal the other in order to balance.
For example, if a company buys $100 of inventory on credit, the accounting entry would show a $100 debit to the inventory account and a $100 credit to the accounts payable account.
The double-entry bookkeeping system is not required by law, but it is generally accepted as the best way to keep accurate records of a business’s financial transactions. Many accounting software programs use the double-entry system.
The main advantage of the double-entry bookkeeping system is that it provides a more complete picture of a company’s financial position than the single-entry system. The double-entry system also makes it easier to detect errors, since each transaction must be recorded twice (on both the debit and credit side).
The main disadvantage of the double-entry bookkeeping system is that it can be more complicated than the single-entry system. This is because each transaction must be recorded in two different places (on the debit and credit side).
Overall, the double-entry bookkeeping system is generally seen as the best way to keep accurate records of a business’s financial transactions. Many accounting software programs use the double-entry system.