Double entry accounting

Written by Fmi.Online Friday January 6, 2023
Double entry accounting is a system of recording business transactions where each transaction affects at least two accounts and requires an equal debit and credit. This system was created in the 13th century as a way to double check the accuracy of recorded numbers.

Explanation:

A double entry accounting system established the accounting equation where assets must always equal liabilities plus owner’s equity. Everything on the left side of the equation, the assets, has a debit balance. Everything on the right side of the equation, liabilities and equity, has a credit balance.

Formula:

Assets = Liabilities + Equity  Assets = debit balance, Liabilities = credit balance, Equity = credit balance

In a nutshell:

  • Double-entry refers to an accounting concept whereby assets = liabilities + owners' equity.
  • In the double-entry system, transactions are recorded in terms of debits and credits.
  • Double-entry bookkeeping was developed in the mercantile period of Europe to help rationalize commercial transactions and make trade more efficient.
  • The emergence of double-entry has been linked to the birth of capitalism.
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