| Double-entry bookkeeping is an accounting technique | | | | The double-entry method is based on the following |
| that records each transaction as both a debit and a | | | | accounting logic: Assets = Liabilities + Equity |
| credit, thus making it easier to double-check your | | | | If there is a change in one side of the equation, there |
| financial transactions. To illustrate: | | | | should be a change in the other side to balance the |
| You conduct a sale but do not collect the payment. | | | | difference. Or, if there is a change in one side, there |
| - Your receivables would increase. | | | | should be an opposite change on the same side. For |
| - Your sales revenue would also increase. | | | | example: |
| You buy from a supplier on credit (you do not pay | | | | If assets increase (you buy equipment), there should |
| them right away). | | | | be a decrease in assets (cash) or an increase on |
| - Your payables would increase. | | | | liability (you bought the equipment with borrowed |
| - Your inventory would also increase. | | | | money). If you enter a decrease in cash or an |
| Let’s say you buy an asset and pay immediately. | | | | increased liability, you will balance out the increase in |
| - Your assets would increase. | | | | assets. |
| - Your cash would decrease. | | | | The double-entry method of bookkeeping can get |
| These are just a few examples, there are many other | | | | confusing, especially if there are many transactions |
| types of transactions found in double-entry | | | | taking place in your company. If your company keeps |
| bookkeeping. Each change in one account must be | | | | inventory and does purchases and sales on credit, the |
| balanced with a change in another account. You might | | | | books might get very hard to maintain. Luckily, thanks |
| have heard of bookkeepers trying to “balance the | | | | to accounting software, keeping accurate records is |
| books”; this means that the bookkeeper is trying to | | | | much easier, and, due to the limitations created into the |
| find a change in one account that balances a change | | | | software, it will not allow you to make an entry that is |
| made in another. | | | | not “balanced. |