Double Entry

AAA

DEFINITION of 'Double Entry'

The fundamental concept underlying present-day bookkeeping and accounting. Double entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the equation Assets = Liabilities + Equity, whereby each entry is recorded so as to maintain the relationship.

INVESTOPEDIA EXPLAINS 'Double Entry'

In the double entry system, transactions are recorded in terms of debits and credits. Since a debit in one account will be offset by a credit in another account, the sum of all debits must therefore be exactly equal to the sum of all credits. The double-entry system of bookkeeping or accounting makes it easier to accurately prepare financial statements directly from the books of account and detect errors.

RELATED TERMS
  1. Zero-Proof Bookkeeping

    A manual bookkeeping procedure in which posted entries are systematically ...
  2. Financial Statements

    Records that outline the financial activities of a business, ...
  3. Accounting Principles

    The rules and guidelines that companies must follow when reporting ...
  4. Journal

    1. In accounting, a first recording of financial transactions ...
  5. Transaction

    1. An agreement between a buyer and a seller to exchange goods, ...
  6. Accrual Accounting

    An accounting method that measures the performance and position ...
RELATED FAQS
  1. What is the best software for calculating trial balances?

    Trial balance software is used to generate reports comparing the total debits and total credits in a double entry book keeping ... Read Full Answer >>
  2. What's the difference between a trial balance and an adjusted trial balance?

    A trial balance is a simple accounting report that gives a picture of a business at periodic intervals, such as monthly or ... Read Full Answer >>
  3. Is a deficit in the balance of payments a bad thing?

    First, it's important to distinguish between the balance of payments and the current account. When the terms "trade deficit" ... Read Full Answer >>
  4. What's the difference between the general ledger and a general journal?

    The difference between a general ledger and the general journal is that the general journal is considered the initial book ... Read Full Answer >>
  5. How can I use Excel as my business's general ledger?

    For a small business with few transactions, a savvy business owner can use Excel as a substitute for accounting software. ... Read Full Answer >>
  6. What is double entry bookkeeping and how does it work in the general ledger?

    Double entry bookkeeping is the concept that every accounting transaction has two affects on a company’s finances. The general ... Read Full Answer >>
  7. How does accrual accounting differ from cash basis accounting?

    The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized. ... Read Full Answer >>
  8. Does the balance sheet always balance?

    Yes, a balance sheet should always balance. The name "balance sheet" is based on the fact that assets will equal liabilities ... Read Full Answer >>
  9. Given a good bookkeeping system, would financial accounting be necessary?

    Bookkeeping and financial accounting may seem like they are new creations, but variations have been around for millennia. ... Read Full Answer >>
  10. Why do accountants use debits and credits instead of simple pluses and minuses? Why ...

    Debits and credits, and the technique of double-entry accounting, are credited (no pun intended) to a Franciscan monk by ... Read Full Answer >>
Related Articles
  1. Insurance

    Ancient Accounting Systems

    Learn how accounting evolved to keep records of increasingly complex transactions and civilizations.
  2. Fundamental Analysis

    Understanding Consolidated Financial Statements

    Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries.
  3. Fundamental Analysis

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  4. Professionals

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  5. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  6. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  7. Economics

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  8. Economics

    What's Recorded in a Cash Book?

    A cash book is an accounting book that records all cash receipts and cash payments before they’re recorded in a business’s general ledger.
  9. Economics

    Explaining Capital Reserve

    Capital reserve is an account on a company’s or municipality’s balance sheet that is dedicated to money reserved for long-term or large-scale projects.
  10. Economics

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!