A system of recording all financial transactions, in which each transaction has two aspects, a debit and a credit, so that a complete record entails entering each transaction twice. credit entries generally record the sources of funds and debit entries the use made of the funds. This should not be confused with profits and losses ( See also: profit and loss account). The recording procedure of double-entry bookkeeping ensures that the balance-sheet equation Assets (A) = Liabilities (L) + Owners' Equity (OE) is not violated. The rules are: Increase assets = Dr., Decrease assets = Cr. Decrease liabilities = Dr., Increase liabilities = Cr. Decrease owners' equity = Dr., Increase OE = Cr. Revenue and expenses are a subset of owners' equity: Decrease = Dr. , Increase revenue = Cr. Increase expense = Dr., Decrease = Cr. Example: you buy a car for $1000 cash: Assets (car) increase $1000, Dr. car account $1000 Assets (cash) decrease $1000, Cr. cash account $1000 Since one asset has increased and another decreased by a corresponding amount, the balance-sheet equation still holds. Example: you buy a car for $1000 credit: Assets (car) increase $1000, Dr. car account $1000 Liabilities increase $1000(debt payable), Cr. debt $1000 Balance is preserved because the asset increase of $1000 on the left-hand side of the balance-sheet equation is matched by a $1000 increase in liabilities on the right-hand side.
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