DOUBLE-ENTRY ACCOUNTING

DOUBLE-ENTRY ACCOUNTING

Keeping in mind the basic accounting equation, we may say that each business transaction has two way effect (double effect) on the financial position of the business. In other words, a business transaction is recorded as a Debit entry in one account and a Credit entry in another account. So recording of the double effect of a transaction is called Double-entry Accounting.

Although the double entry system of accounting was prevalent even before the fifteenth century AD, it was described by an Italian mathematician in his book published in 1494 AD. The systems and procedures described in this book have since been further developed.

The basic accounting equation has been based upon this Double-entry system of Accounting.

Any business transaction will record the Debit as

Increase in Asset Account
Decrease in Liability Account
Decrease in Owner’s Equity Account
Increase in Expense Account
Decrease in Revenue Account

And the same transaction will record the Credit as

Decrease in another Asset Account
Increase in a Liability Account
Increase in Owner’s Equity Account
Decrease in an Expense Account
Increase in a Revenue Account