Double-Entry Bookkeeping
An accounting system where every transaction is recorded in at least two accounts, keeping total debits equal to total credits.
What is Double-Entry Bookkeeping?
Double-entry bookkeeping is the standard accounting method in which every financial transaction is recorded in at least two accounts — one debit and one credit of equal amounts — ensuring that the accounting equation (Assets = Liabilities + Equity) always remains in balance. Developed in 15th-century Italy and codified by Luca Pacioli in 1494, this system provides built-in error detection: if total debits do not equal total credits, an error exists. The double-entry system is the foundation of all modern financial accounting and is required by GAAP and IFRS. It provides a complete audit trail for every transaction and enables the preparation of the balance sheet, income statement, and cash flow statement from a single integrated ledger.
Example
A company borrows $500,000 from a bank. The double-entry record debits Cash $500,000 (increasing an asset) and credits Notes Payable $500,000 (increasing a liability). Total assets increase by the same amount as total liabilities, keeping the balance sheet equation in balance.