Basics of Double-Entry Bookkeeping

Basics of Double-Entry Bookkeeping
Double-entry bookkeeping is a fundamental accounting principle where every financial transaction affects at least two accounts and maintains the accounting equation:

Assets = Liabilities + Equity

📘 1. What is Double-Entry Bookkeeping?
Each transaction is recorded twice:

Once as a debit

Once as a credit

The total debits must always equal the total credits, ensuring the books stay balanced.

🧾 2. Core Components
Component Description
Account A record for a specific type of transaction (e.g., Cash, Sales, Rent).
Debit (Dr) An entry on the left side of an account.
Credit (Cr) An entry on the right side of an account.

🔑 3. The Golden Rules of Accounting
A. Personal Account
Debit the receiver

Credit the giver

B. Real Account
Debit what comes in

Credit what goes out

C. Nominal Account
Debit all expenses and losses

Credit all incomes and gains

💼 4. Example of a Double-Entry Transaction
Transaction: You buy office furniture for ₹10,000 in cash.

Account Debit (₹) Credit (₹)
Furniture A/c 10,000
Cash A/c 10,000

Furniture increases → Debited

Cash decreases → Credited

📊 5. Types of Accounts Affected
Assets (e.g., Cash, Inventory)

Liabilities (e.g., Loans, Payables)

Equity (e.g., Capital, Retained Earnings)

Income (e.g., Sales)

Expenses (e.g., Rent, Utilities)

✅ 6. Benefits of Double-Entry System
Accurate financial records

Helps detect errors and fraud

Facilitates preparation of financial statements

Maintains the balance in the accounting equation