What is double entry bookkeeping
Double-entry bookkeeping, often described as the double-entry principle, constitutes the structural framework of contemporary accounting systems and is universally adopted in financial recording and reporting.
The practice, a historical innovation from the 15th century, entails that every financial transaction is duly noted in at least two distinct accounts: as a debit, which represents either an increase in assets or an increase in expenses; and as a credit, indicating either an increase in liabilities/equity or revenue. This twin-entry system ensures each financial event is transparently and fully documented—for instance, a purchase would register both as an expenditure and a reduction in bank funds, narrating both the nature of the expense and its source of funding.
Double-entry bookkeeping bespeaks the verifiability of accounts by fuelling traceability where money movements are thoroughly accounted for, eliminating the possibility of funds vanishing without explanation or emerging unaccounted for. In simple terms, ‘debit’ means that an account’s balance goes up, and ‘credit’ means it goes down or shows what you owe.
The convenience of an accounting software lies in its automated facilitation of double-entry bookkeeping, allowing users to focus less on the mechanics and more on their business operations. Comprehending the underpinning principles of double-entry bookkeeping, however, remains a foundational financial literacy skill.