Definition of Double-Entry Bookkeeping
Double-entry bookkeeping is a system of bookkeeping whereby every business transaction is recorded two times (twice) in two different books of account or ledger. Double-entry means that every business transaction has a double aspect of receiving and giving. It is a system where transactions are recorded on both the credit and debit sides of the account. It divides the ledger into two halves i.e. Dr. (Debit) and Cr. (Credit). The left-hand side is known as the debit side while the right hand is called the credit side.
The account which receives value is debited while the account that gives value is credited.
Basic Rules the of Double-Entry System:
The fundamental rules of the double-entry system state:
- For every debit entry, there must be a corresponding credit entry and vice versa.
- Debit the receiver and credit the giver.
Double Entry Treatment of Assets:
Assets are the properties of the business. They are any item of value owned by a business organization for the purchase of running the day to day activities of the organization, for example, machines, equipment, buildings, land, furniture, fittings, etc.
Entries for an increase in assets are debited while a decrease in assets is credited.
Double Entry Treatment of Liabilities:
Liability is the amount that business organisations owe to outsiders Example: creditors, Entries for liabilities: increases in liabilities are credited while decreases are debited.
Double Entry Treatment of Capital:
Capital is the amount used in doing business or the amount invested in a business. Entries for capital increases in capital are credited while decreases are debited.
Double Entry Treatment of Expenses:
Expenses represent debt incurred in the cause of running a business such as rent, salaries and wages, charges for utilities, cost of procuring raw materials, insurance etc. Entries for expenses: increases in expenses are debited while decreases are credited.