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Thursday, October 29, 2009

Double Entry Bookkeeping

Double entry bookkeeping is the method by which a business records financial transactions. An account is maintained for every supplier, customer, asset, liability, income and expenses.

Every transaction is recorded twice so that for every debit there is an equal, corresponding credit.

Double entry bookkeeping is the method used to transfer totals from our books of prime entry into the normal ledger. In ledger accounts we saw debt and credit side, are kept in a way which allows the two sided nature of business transactions to be recorded.

The Rules of Double Entry Bookkeeping

The basic rule which must always be always be observed is that every financial transaction gives rise to two accounting entries, one a debt and the other a credit.
Which accounting receives the credit entry and which receives the debit depends on the nature of the transaction.

  • An increase in an expense or an increase in an asset is a debit.
  • An increase in income or an increase in a liability is a Credit.
  • A decrease in an asset is a credit.
  • A decrease in a liability is a debit.


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