What is the Double Entry Bookkeeping System?
The double entry bookkeeping system is a method of bookkeeping which records each transaction twice. This reflects the dual nature of each transaction as it affects the business.
The first entry records what comes into the business (a debit) and the second entry what goes out of the business (a credit).
Each transaction reflects the basic accounting equation which can be stated as:
If each entry is recorded correctly the books of account will balance. This method of double entry helps with the compilation of accounting data which enables a trial balance, profit and loss account and a balance sheet to be drawn up.
Invented in the 13th century by Italian merchants, double entry bookkeeping is used worldwide. 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 bookkeeping system see the Wikipedia definition.
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