Double-entry accounting system

Definition

A double-entry accounting system is a method of bookkeeping where every transaction affects at least two accounts, with one debit and one credit. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.

5 Must Know Facts For Your Next Test

1. Each transaction requires equal debits and credits to maintain balance.
2. The system improves accuracy and reduces errors in financial records.
3. It forms the basis for creating financial statements such as the balance sheet and income statement.
4. Double-entry accounting helps in tracking both individual account balances and overall financial health.
5. The trial balance is used to verify that total debits equal total credits.

Related terms

GeneralLedger: The master set of accounts that summarize all transactions occurring within an entity.

TrialBalance: A report that lists all ledger accounts with their respective debit or credit balances at a specific point in time.

AccountingEquation: The fundamental equation representing the relationship between assets, liabilities, and equity (Assets = Liabilities + Equity).