What is Double-entry accounting?

Double-entry accounting rests on one rule: every transaction affects at least two accounts, and the total debits always equal the total credits. If you buy $500 of stock with cash, inventory goes up by $500 (a debit) and cash goes down by $500 (a credit). The accounting equation, assets equal liabilities plus equity, stays in balance after every entry, which is what makes errors and missing entries visible.

Debits and credits are directions, not good or bad. Debits increase assets and expenses and decrease liabilities, equity and revenue; credits do the opposite. A sale on account debits accounts receivable and credits revenue (plus a credit to sales tax payable). Paying a supplier debits accounts payable and credits cash. A trial balance lists every account’s balance; if total debits do not equal total credits, something was posted wrong.

Single-entry bookkeeping, a simple list of money in and money out, works for a hobby but cannot produce a proper balance sheet. Double entry is the standard for any business that files a corporate return, borrows money or wants to know what it owns and owes. Modern software does the debits and credits behind ordinary screens like invoices, bills and POS sales, but the underlying journal is still double entry.