Identify what type of journal entry is required for this transaction . If there are multiple transactions within this journal entry, write down each one separately as well. Assets are recorded on the left side of the ledger, while liabilities and equity are recorded on the right side.

The purpose is to tally both the accounts and balance the credit and the debit side. This accounting system helps organizations assess their overall performance in a financial year. The Grouch Electronics company sells a $5,000 home entertainment installation to a client on credit. This results in a debit of $5,000 of the company’s accounts receivable account and a credit of $5,000 to its sales account. Later, the customer pays the $5,000 invoice, at which point the company records a debit of $5,000 to its cash account and a credit of $5,000 to its accounts receivable account.

The Basics of Double Entry

You can see how you’ve spent and how your business is doing. Small businesses can use double-entry bookkeeping as a way to monitor the financial health of a company and the rate at which it’s growing. This bookkeeping system ensures that there is a record of every financial transaction, which helps to prevent fraud and embezzlement.


It is a necessity given the complexity and volume of their business. When choosing accounting software, companies should look for features such as real-time data access, advanced analytics tools and accelerated closing processes. Companies of all sizes, across all industries, use double-entry accounting. One key reason is that it is the only bookkeeping method that complies with U.S. All U.S. public companies must be GAAP compliant for financial reporting purposes. Additionally, most lenders require GAAP-compliant financial statements when evaluating loan applications from any private or public company.

What Are the Different Types of Accounts?

Increase in shareholders equity account will be recorded via a credit entry. Increase in a revenue account will be recorded via a credit entry. Today, every modern accounting system framework is based on double-entry accounting as at least 2 accounts are affected after every transaction. In fact, you probably won’t be able to save the entries in your system unless the transaction balances. In practice, using a double-entry accounting system quickly becomes second nature.

It helps growing businesses track increasingly complex operations, and it’s essential for public companies and for private ones that rely on outside financing. Software can automate and greatly simplify the process of establishing and maintaining a double-entry accounting method and using it to generate financial statements. This entry increases the inventory asset account with a debit and establishes a liability for the amount owed on credit with a credit. When the company pays the bill from Checkers Sugar Supply, the bookkeeper will reduce accounts payable with a debit and reduce cash with a credit. Finally, it requires extra work in the closing process to yield balanced financial statements.

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That activity includes things like the $5.50 you spent at the coffee shop during your breakfast meeting as well as the customer payment you deposited. Benedetto Cotrugli, an Italian merchant, invented the double-double entry accounting meaning accounting system in 1458. Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. Expenses and Revenue – These accounts show how much a company has spent and earned from its operations. Liabilities – This account keeps track of bills and debts that a company owes.

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