Double-entry bookkeeping is a system where every financial transaction affects two accounts, recording both a "debit" and a "credit." This approach ensures that the business’s books stay balanced, as every dollar moving out of one place has a matching dollar moving into another.Â
For instance, if a business takes a loan, it’ll record an increase in its cash account (debit) and an equal increase in a liability account (credit) for the loan amount.Â
Double-entry bookkeeping provides a complete, balanced view of a company’s finances, helping reduce errors and track both sides of every transaction. This system records each transaction twice—once as a debit and once as a credit—which keeps the books balanced and shows where the money comes from and where it goes. This built-in balance ensures that assets always equal liabilities plus equity, allowing any discrepancies to stand out immediately​.
Double-entry bookkeeping is also what makes it possible to produce detailed financial statements, like balance sheets and income statements.Â
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