Double Entry System of Accounting, Explained
Definition
The double entry system records every transaction in at least two accounts — one debited and one credited for the same amount — so the books always balance.
| Term | Double entry system |
|---|---|
| In Hindi | दोहरी लेखा प्रणाली |
| Area | Accounting |
| Search phrase | double entry system |
| Try it | Golden rules of accounting |
दोहरी लेखा प्रणाली — हिंदी में अर्थ
दोहरी लेखा प्रणाली में हर लेन-देन कम से कम दो खातों में दर्ज होता है — एक डेबिट और एक क्रेडिट, बराबर राशि से — ताकि खाते हमेशा संतुलित रहें।
The principle
Every transaction has two aspects: something is received and something is given. Buying stock for cash increases stock and decreases cash; recording both keeps Assets = Liabilities + Capital true at all times.
Advantages
It gives a complete record, allows a trial balance to check arithmetic accuracy, makes the profit and loss account and balance sheet possible, and helps detect fraud because each entry must be matched by another.
Example
Took a bank loan of ₹5 lakh: Bank A/c Dr ₹5,00,000 (asset up); To Loan A/c ₹5,00,000 (liability up).
Related tools and guides
Frequently asked questions
What is the double entry system?
Recording every transaction with equal debit and credit entries in at least two accounts.
Who developed double entry bookkeeping?
It was first described in print by Luca Pacioli in 1494, though merchants used it earlier.
What is the opposite of double entry?
Single entry, where only one side (usually cash and personal accounts) is recorded — incomplete and not suitable for final accounts.
Does accounting software use double entry?
Yes. Every invoice, bill and payment posts balanced debits and credits automatically.
Related terms
- Accounts receivableAccounts receivable is the money customers owe a business for goods or services already supplied on credit. It is shown as trade receivables (debtors) under current assets.
- Accrual vs cash basis of accountingUnder the accrual (mercantile) basis, income and expenses are recorded when they are earned or incurred, whatever the payment date. Under the cash basis, they are recorded only when cash is actually received or paid.
- Balance sheetA balance sheet is a statement of what a business owns (assets) and what it owes (liabilities and owners' equity) on a particular date. Total assets always equal total equity plus liabilities.
- Cash conversion cycleThe cash conversion cycle (CCC) is the number of days between paying for raw material and collecting cash from the customer for the finished goods: days inventory outstanding plus days sales outstanding minus days payables outstanding.
- Contra entryA contra entry is a transaction between cash and bank accounts of the same business — such as cash deposited into the bank or cash withdrawn for office use — where both the debit and the credit side are cash or bank.
- Contribution marginContribution margin is selling price minus variable cost. It is the amount each sale contributes first towards fixed costs and then to profit; as a percentage of sales it is called the contribution margin ratio or P/V ratio.