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Double-entry bookkeeping, also known asdouble-entry accounting, is a method ofbookkeeping in which every financial transaction is recorded with equal and opposite entries in at least two accounts, ensuring that totaldebits equal totalcredits.[1][2] The purpose of double-entry bookkeeping is to maintain accuracy infinancial records and allow detection of errors orfraud.[3] A transaction in double-entry bookkeeping always affects at least two accounts, always includes at least onedebit and credit, and always has total debits and total credits that are equal.[4][5]
Double-entry bookkeeping is a method of tracking the investment an owner makes in a business - its equity, or net worth. Ultimately, a common system for tracking business transactions improves the ability of the users of the financial information to read, process, and understand the financial picture of a company's operations. As the complexity and volume of transactions increases, companies use ledgers andaccounting information systems to automate the tracking of individual transactions and to createfinancial statements.
The earliest extant accounting records that follow the modern double-entry system in Europe come fromAmatino Manucci, aFlorentine merchant at the end of the 13th century.[6] Manucci was employed by the Farolfi firm and the firm's ledger of 1299–1300 evidences full double-entry bookkeeping. Giovannino Farolfi & Company, a firm ofFlorentine merchants headquartered inNîmes, acted asmoneylenders to theArchbishop of Arles, their most important customer.[7] Some sources suggest thatGiovanni di Bicci de' Medici introduced this method for theMedici bank in the 14th century, though evidence for this is lacking.[8]
The double-entry system began to propagate between Italian merchant cities during the 14th century.[9] Before this, there may have been systems of accounting records on multiple books which did not yet have the formal and methodical rigor necessary to control the business economy. In the course of the 16th century, Venice produced the theoretical accounting science by the writings ofLuca Pacioli, Domenico Manzoni, Bartolomeo Fontana, the accountant Alvise Casanova[10] and the eruditeGiovanni Antonio Tagliente.
Benedetto Cotrugli (Benedikt Kotruljević), aRagusan merchant and ambassador toNaples, described double-entry bookkeeping in his treatiseDella mercatura e del mercante perfetto. Although it was originally written in 1458, no manuscript older than 1475 is known to remain, and the treatise was not printed until 1573. The printer shortened and altered Cotrugli's treatment of double-entry bookkeeping, obscuring the history of the subject.[11][12]Luca Pacioli, aFranciscan friar and collaborator ofLeonardo da Vinci, first codified the system in hismathematicstextbookSumma de arithmetica, geometria, proportioni et proportionalità published inVenice in 1494.[13]Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it.[14][15][16]
Inearly modern Europe, double-entry bookkeeping had theological and cosmological connotations, recalling "boththe scales of justice and the symmetry of God's world".[17]
Businesses are connected to their business environment through flows of goods and money. These transactions are referred to as business transactions. Likewise, actual events within the business are considered business transactions if they change assets, liabilities, or equity. In the double-entry accounting system, every financial transaction requires at least two entries to ensure balance between accounts.[18] These entries are recorded across different types of accounts, including assets, liabilities, equity,expenses, andrevenues.[19] When a debit is recorded in one or more accounts, an equal credit is entered in other accounts, ensuring that total debits equal total credits in the general ledger.[20] If the accounting entries are recorded without error, the aggregate balance of all accounts havingDebit balances will be equal to the aggregate balance of all accounts havingCredit balances. Entries typically share the same date and identifying code across related accounts, enabling them to be traced back to journals and source documents, thereby preserving anaudit trail.[21] The accounting entries are recorded in the "Books of Accounts". Regardless of how many accounts a transaction affects, the fundamental accounting equation, assets equal liabilities plus equity, always holds.[22]
If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. However, satisfying the equation does notnecessarily guarantee a lack of errors. For example, the wrong accounts could have been debited or credited or there could have been two correct accounts one debited and another credited equally at the wrong amounts.
The double-entry system can be applied using two main methods: the traditional approach (British approach) and the accounting equation approach (American approach). Regardless of the method, every transaction maintains two aspects, debit and credit.[23] Irrespective of the approach used, the effect on the books of accounts remains the same, with two aspects (debit and credit) in each of the transactions.
Under the traditional (British) approach, accounts are divided into three categories: real accounts, personal accounts, and nominal accounts.[24] Real accounts are accounts relating to assets both tangible and intangible in nature.[25] Personal accounts are accounts relating to persons or organisations with whom the business has transactions and will mainly consist of accounts of debtors and creditors.[26] Nominal accounts are accounts relating to revenue, expenses, gains, and losses.[27] The golden rules of accounting guide the traditional approach:
The great importance of the primary journals lies in the fact that they should make it possible to trace every single business transaction back to the original voucher without great effort at any given time during the retention periods, even for past events.[29] Thus, bank statements can be used as primary journals.[29] To simplify or enable the tracking of business transactions in the general ledger, it is necessary to note the account assignment on the original document or to ensure corresponding digital traceability.[29]
The accounting equation approach, also called the American approach, records transactions on the basis of theaccounting equation[30] :
The accounting equation is a statement of equality between the debits and the credits. The rules of debit and credit depend on the nature of an account. For the purpose of the accounting equation approach, all the accounts are classified into the following five types: assets, capital, liabilities, revenues/incomes, or expenses/losses.
If there is an increase or decrease in a set of accounts, there will be equal decrease or increase in another set of accounts.
In this approach, debit and credit rules are applied as follows:
These five rules guide learning about accounting entries and are comparable with traditional (British) accounting rules.
In double-entry bookkeeping, every financial transaction is entered into at least twonominal ledger accounts to ensure that total debits equal total credits, maintaining balance in the general ledger.[32] This is a partial check that each and every transaction has been correctly recorded.[33] Each transaction is recorded as a "debit entry" (Dr) in one account, and a "credit entry" (Cr) in a second account.[33] Debits are posted on the left-hand side of a ledger account, while credits are posted on the right-hand side.[34] If the total of the entries on the debit side of one account is greater than the total on the credit side of the same nominal account, that account is said to have a debit balance.[35]
Double entry is applied within nominal ledgers, whiledaybooks (journals) typically serve as preliminary records and are not part of the nominal ledger itself.[36] The information from the daybooks will be used in the nominal ledger and it is the nominal ledgers that will ensure the integrity of the resulting financial information created from the daybooks (provided that the information recorded in the daybooks is correct).[37]
The reason for this is to limit the number of entries in the nominal ledger: entries in the daybooks can be totalled before they are entered in the nominal ledger.[38] If there are only a relatively small number of transactions it may be simpler instead to treat the daybooks as an integral part of the nominal ledger and thus of the double-entry system.[38]
However, as can be seen from the examples of daybooks shown below, it is still necessary to check, within each daybook, that the postings from the daybook balance.[39]
Nominal ledger accounts form the basis for preparing atrial balance, which lists debit and credit balances in two columns to confirm that total debits equal total credits.[40] The trial balance lists all the nominal ledger account balances. The list is split into two columns, with debit balances placed in the left hand column and credit balances placed in the right hand column.[41] Another column will contain the name of the nominal ledger account describing what each value is for. The total of the debit column must equal the total of the credit column.[42]
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A debit entry in an account represents a transfer of valueto that account, and a credit entry represents a transferfrom the account.[43] Since both sides of a double-entry bookkeeping entry must remain in balance, accounts then have anormal balance, which is based upon whether a debit or a credit increases the account. Normal balance accounts for typical account types is listed below inbold[44]:
| Account Type | Debit | Credit |
|---|---|---|
| Asset | Increase | Decrease |
| Liability | Decrease | Increase |
| Capital | Decrease | Increase |
| Revenue | Decrease | Increase |
| Expense | Increase | Decrease |
Due to the format of a ledger, historically debits are recorded on the left side of the ledger, and credits are recorded on the right side of the ledger. This may be represented graphically with the use of aT account.
Note the normal balance of the account, and whether the transaction is recorded on the left or right side of the ledger. Assume a business entity performs the following activities:
| Transaction | Equity | Assets (Cash) | Assets (Inventory) | Liabilities | ||||
|---|---|---|---|---|---|---|---|---|
| Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | |
| 1 - Purchase Inventory on Credit | $10,000 | $10,000 | ||||||
| 2A - Sell Inventory to Customer | $15,000 | $15,000 | ||||||
| 2B - Recognize Relief of Inventory | $10,000 | $10,000 | ||||||
| 3 - Pay Vendor for Inventory | $10,000 | $10,000 | ||||||
| Net Activity | $5,000 | $5,000 | $0 | $0 | ||||
Note in the example above that both sides of the transaction are equal in each case. Also note the normal balance of the account, and which transactions are written on the left or right sides of the ledger. The net impact of the above transactions are increase in cash of $5,000 and an increase in equity of $5,000 - this is reasonable because the company bought inventory for $10,000 and sold it for $15,000, leaving $5,000 as theprofit in the business.
The net impact of all transactions is that the owner's equity in the business has increased by $5,000, because it purchased inventory for $10,000 and in turn sold it to an end customer for $15,000.
{{cite journal}}: CS1 maint: DOI inactive as of December 2025 (link){{cite book}}:ISBN / Date incompatibility (help)The term 'book' or 'books' corresponds to tradition, as in earlier times it actually referred to books in bound form.
In the late sixteenth-century [...] number still carried the pejorative connotations associated with necromancy [...]. [...] [D]ouble-entry bookkeeping helped confer cultural authority on numbers. It did so by means of the balance [...]. For late sixteenth-century readers, the balance conjured up both the scales of justice and the symmetry of God's world.
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