Double-entry bookkeeping is a system of bookkeeping that provides a more detailed view of your financial transactions at a glance. 

For those new to bookkeeping, double-entry bookkeeping can seem complex. We’ll break down what you need to know about it, how it works, and how it differs from single-entry bookkeeping. 

What is Double-Entry Bookkeeping?

Double-entry bookkeeping is a bookkeeping method. Like single-entry bookkeeping, the goal of double-entry bookkeeping is to have your books balanced. 

Debits will: 

• Decrease liabilities and owner’s equity on balance sheets
• Increase assets on balance sheets
• Increase expense accounts on an income statement

Credits will: 

• Decrease assets on balance sheets
• Increase liabilities and owner’s equity on balance sheets
• Increase revenue on an income statement

• The chart of accounts affects credits and debits in the following ways:

  • Assets: Increase debit; Decrease credit
  • Liabilities: Increase credit; Decrease debit
  • Equity: Increase credit; Decrease debit
  • Revenue: Increase credit, Decrease debit
  • Expenses: Increase debit, increase credit

  On an income statement, debits increase balances in expenses and loss accounts. Credits will decrease those balances. Debits will decrease revenue, while credits increase the revenue balance.

  Every transaction that your business makes will require one debit and one credit. There is no limit to the number of transactions that can use credits or debits.

  Double-entry bookkeeping must also follow this equation: Assets = Liabilities + Equity. 

  Assets include: 

  • Cash
  • Cash equivalents
  • Liquid assets (certificates of deposit or Treasury bills)
  • Inventory

  Liabilities include: 

  • Debt
  • Dividends payable
  • Long-term debt
  • Rent
  • Salaries
  • Taxes
  • Utilities

  Equity, or shareholders’ equity, is the company’s total assets minus its liabilities. This is the equivalent of the money that shareholders would receive if assets were liquidated and debts were paid.

  Companies can also have retained earnings. Retained earnings are part of shareholders’ equity. These earnings are equal to the percentage of net earrings unpaid to shareholders as dividends. 

  How is it Different than Single-Entry?

  In double-entry bookkeeping, each account has two columns per transaction, and each transaction is in two accounts: debit and credit. Single-entry only requires one entry per transaction, one that can affect either expenses or revenue. 

  Double-entry bookkeeping accounts list accounts for assets, expenses, income, and liability. On the other hand, single-entry bookkeeping only lists expenses and income.

  Double-entry bookkeeping also allows you to monitor multiple accounts. This can help you manage a larger business. All of your company’s financial activities will appear in one place, and transactions will have easy to find descriptions. 

  Finally, double-entry bookkeeping contains more detailed information about your financial transactions. You’ll examine your equity, losses, and profits instead of only profits and losses like single-entry bookkeeping.