Double-Entry Bookkeeping

Definition

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. 

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. 

Why it matters

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.