Double entry bookkeeping system

30 января 2020 by Forex Broker


What is a double entry in accounting? Double entry bookkeeping is a method of accounting, which is the basis for the formation of documented systematized information about accounting objects.

Double entry bookkeeping system definition

The double entry bookkeeping method in accounting means that all business transactions are reflected in at least two related accounting accounts included in the working chart of accounts. The double entry method is also often referred to as the double entry principle in accounting, thereby emphasizing the fundamental role of the double entry in the accounting system. Thus, a double entry bookkeeping definition is easy to remember. 

Double entry bookkeeping system history

People often ask,  “Who invented double entry bookkeeping?”. Accounting started in the Italian Renaissance. The creation of the double entry bookkeeping served to improve further private capital, which provided well-being for the life and creativity of human society. The system of double entry was formed in the XIII — XVI centuries. It was used in a small number of shopping centers in Northern Italy. The double-entry bookkeeping system found in the municipal records of Genoa dates back to 1340. An even earlier double entry was found in a Florentine trading firm (1299-1300), as well as a firm that sold in the province of Сhampagne (France). So, the history of double entry bookkeeping is really interesting. 

Double entry bookkeeping system example

The concept and meaning of double entry bookkeeping are visible in the examples. Let’s see double entry bookkeeping explained in the example. Cash withdrawals from the bank to the cashier are recorded based on the nature of the double entry in the accounting transaction:

The debit of account “cash desk” is the credit of account “Settlement accounts.”

Account “Settlements with founders” is active-passive, and in this case, its crediting does not mean an increase in the organization’s accounts payable to the founders, but a decrease in accounts receivable on deposits to the authorized capital. After all, the specified transaction was preceded by a record of the form in a double-entry bookkeeping system. 

Double entry bookkeeping system pros and cons 

The fact is that double entry bookkeeping is not so much an abstract method of accounting for the uninitiated, as a way to check the correctness of the reflection of operations. It allows you to provide a well-known principle: an asset is equal to a liability, and a debit is equal to a credit. Accordingly, if the indicators in the balance sheet for debit and credit do not match, it means that an error has sneaked in somewhere. It means that some receipt or debt has not been taken into account. Now you know how to answer “What is double entry bookkeeping?” and “What are its drawbacks?”.

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