Double-entry bookkeeping is the concept that every accounting transaction impacts a company’s finances in two ways. The general ledger is the record of𝕴 the two sides of each transaction.

If a company sells a product, its revenue and cash increase by an equal💮 amount. When a company borrows funds from a creditor, the cash balance increases and the balance of the company’s debt increases by the same amount.

How Double-Entry Bookkeeping Works

The 澳洲幸运5开奖号码历史查询:double-entry system creates a balance sheet made up of assets, liabilities, and equity. The sheet is balanced because a company🐽’s assets will always equal its liabilities ಌplus equity. Assets include all of the items that a company owns, such as inventory, cash, machinery, buildings, and even intangible items such as patents.

Liabilities represent everything the company owes to someone else, such as short-term accounts payable owed to suppliers or long-term notes payable owed to a bank. Equity represents the owners’ stake in the company. Equity may include any contributions the owners have ⛎made to the company, plus the companyꦰ’s profits or minus the company’s losses.

Each entry has a “debit” side and a “credit” side, recorded in the general ledger. Asset accounts increase when debited and decreas🔥e when credited. Convers🔯ely, liabilities and equity increase when credited and decrease when debited.

If an asset increases with a debit, then the credit side of the entry will either affect another asset by decreasing it or affect a liability or equity account, increasing it, in order to keep the assets = liabilities + equity equation in balance.

Example of Double-Entry Bookkeeping

If Lucie opens a new grocery store, she may start the business by contributing some of her own savings of $100,000 to the company. The first entry to the general ledger would be a debit to Cash, increasing the assets of the company, and a credit to Equity, increasing Lucie’s owners♌hip stak🎃e in the company.

If Lucie purchases some shelving units for $5,000 on the company credit card, the next entry to the general ledger would be a debit to Equipment for $5,000, increasing the assets of the company, and a credit to Credit Card Due ღfor $5,000, increasing the liabilities of the company.

A sub-ledger may be kept for each individual account, which wi꧋ll only represent one-half of the entry. The general ledger, however, has the record for both halves of the entry. When Lucie purchases the shelving, the Equipment sub-ledger would only show half of the entry, which is the debit to Equipment for $5,000.

The Credit Card Due sub-ledger would include a record of the other half of the entry, a credit for $5,000ꦐ. The general ledger would have two lines added to it, showing both the debit and credit for $5,000🧜 each.

The Bottom Line

Double-entry bookkeeping is a foundation of business accounting and is recorded in the general ledger, which reflects the record of a transaction as either a credit or debit and its impact on the opposite side; either a debit for a recorded credit or a credit for a recorded debit. The goal is to keep the balance sheet equation of assets = liabilities + equity in place. The general ledger reflects this by recording both sides of a transaction.