What is Double Entry Accounting?
Double entry accounting is a method of bookkeeping which records each financial transaction twice using debits and credits. If each entry is recorded correctly the books of account will balance.
This method of double entry accounting helps with the compilation of financial data, which enables a trial balance, income statement, balance sheet and cash flow statement to be produced.
Each transaction reflects the basic accounting equation which can be stated as follows:
The first entry, a debit, is recorded on the left and shows what comes into the business. The second entry, a credit, is recorded on the right, and shows what goes out of the business.
History of Double Entry Accounting
Double entry accounting has used in commercial bookkeeping systems for over five centuries, and was invented in the 13th century by Italian merchants. The principles were first set out in writing by the Italian monk Luca Pacioli (1445-1517) in the 1494 book ‘Summa de Arithmetica.’
For further information on the double entry accounting see the Wikipedia definition.
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