Double-Entry Bookkeeping System

A double-entry bookkeeping system is one where each financial transactions is recorded in the accounting system twice - once as a credit and again as a debit for the same amount. These two transactions cancel each other out which serves as a way of checking all the transaction amounts are recorded accurately.

In a manual bookkeeping system each account would have it's own page in the ledgers, with debit entries on the left and credit entries on the right with the top line being used for the account heading (account details etc.) This is why the double entry accounts are sometimes referred to as 'T' accounts.

An Example of Double-Entry

As an example lets take paying for a new laptop:

1. In order to buy the laptop the business will need to pay for this from the bank account so the bank account will show less money. To show this an entry is needed to reflect this reduction.
2. On the other side of the coin the business will also gain an asset - a laptop, the value of this will need to be recorded in possibly an IT equipment account.

These value would be recorded on opposite sides of the accounts and will be the same value so will cancel each other out.