Double Entry
You will learn the rules of double entry accounting, understand what debits and credits mean, and how they work together in double entry. You will also learn how to accurately record business transactions using the double entry system.
Related Lessons:
Rules of Double Entry
The double entry of accounting means that for every transaction,
- At least two different accounts are affected
- One account is debited, and the other account is credited
- Total amount debited must be equal to the total amount credited
A Debit to an account can be a plus or minus, likewise for a Credit. The factor that determines if a debit or credit is a plus or minus depends on the nature of the account.
For Debit nature accounts, that is, Assets, Expense and Drawings accounts: Debit is a plus and Credit is a minus.
For Credit nature accounts like Liability, Income and Capital accounts: Debit is a minus while Credit is a plus.
Recording Using Double Entry
To record a transaction using double entry rules, we will carry out the following steps:
First: We identify the accounts affected by the transaction
Second: We determine of the accounts affected, which is to increase and which to decrease
Third: We categorise the accounts into Assets, Liability, Capital, Drawings, Income or Expense in order to determine their nature
Finally: By identifying the nature of the accounts, we can then decide the accounts to debit or credit