DOUBLE ENTRY BOOK-KEEPING AND STEPS INVOLVED IN DOUBLE ENTRY BOOKKEEPING

Double entry bookkeeping is a system of recording financial transactions in which every transaction is recorded in at least two accounts, with equal and opposite debits and credits. This system is used by businesses to keep track of their financial activities and ensure accuracy in their financial statements.

In double entry bookkeeping, each transaction is recorded in two accounts: one account is debited and another account is credited. The account that is debited receives an entry that represents an increase in an asset, or a decrease in a liability or equity. The account that is credited receives an entry that represents a decrease in an asset, or an increase in a liability or equity.

For example, if a business purchases inventory on credit, the inventory account would be debited (to increase the asset), and the accounts payable account would be credited (to increase the liability). If the business later pays off the accounts payable, the accounts payable account would be debited (to decrease the liability), and the cash account would be credited (to decrease the asset).

By using double entry bookkeeping, businesses can ensure that their financial statements are accurate and that all transactions are properly recorded. It also helps them to easily identify errors or discrepancies in their financial records.

double entry book-keeping

Double entry bookkeeping is a system of recording financial transactions in which every transaction is recorded in at least two accounts, with equal and opposite debits and credits. This system is used by businesses to keep track of their financial activities and ensure accuracy in their financial statements.

In double entry bookkeeping, each transaction is recorded in two accounts: one account is debited and another account is credited. The account that is debited receives an entry that represents an increase in an asset, or a decrease in a liability or equity. The account that is credited receives an entry that represents a decrease in an asset, or an increase in a liability or equity.

For example, if a business purchases inventory on credit, the inventory account would be debited (to increase the asset), and the accounts payable account would be credited (to increase the liability). If the business later pays off the accounts payable, the accounts payable account would be debited (to decrease the liability), and the cash account would be credited (to decrease the asset).

By using double entry bookkeeping, businesses can ensure that their financial statements are accurate and that all transactions are properly recorded. It also helps them to easily identify errors or discrepancies in their financial records.

Here are the 7 steps involved in double entry bookkeeping:

1. Identify the transaction: The first step in double entry bookkeeping is to identify the transaction that needs to be recorded. This could be anything from a sale, a purchase, a payment or a receipt.
2. Determine the accounts: Once the transaction is identified, the accounts that will be affected by the transaction need to be determined. This will depend on the nature of the transaction and the accounts involved.
3. Decide the type of accounts: The accounts that will be affected by the transaction need to be classified as either asset, liability, equity, income or expense accounts.
4. Determine the debit and credit accounts: Based on the type of accounts involved, it needs to be determined whether the transaction will result in a debit or a credit for each account.
5. Record the transaction: The transaction needs to be recorded in the relevant accounts. The debit amounts are recorded on the left side of the account, and the credit amounts are recorded on the right side of the account.
6. Check for accuracy: Once the transaction is recorded, it is important to check for accuracy by ensuring that the total debits equal the total credits.
7. Update the general ledger: Finally, the transaction needs to be updated in the general ledger, which is a summary of all the accounts maintained by the company. This will help in keeping track of the balances of each account and provide a complete picture of the company’s financial position.