Concept of Double Entry

Double Entry

*Every transaction has two effects. For example, if someone transacts a purchase of a drink from a local store, he pays cash to the shopkeeper and in return, he gets a bottle of dink.

*Double entry is the fundamental concept underlying present-day bookkeeping and accounting. 

*Double entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts.

*It is used to satisfy the equation Assets =Liabilities+Equities whereby each entry is recorded so as to maintain the relationship.

*Traditionally, the two effects of an accounting entry are known as Debit (Dr) and Credit (Cr). Accounting system is based on the principal that for every Debit entry, there will always be an equal Credit entry. This is known as the Duality Principal.

Debit entries are ones that account for the following effects:

• Increase in assets
• Increase in expense
• Decrease in liability
• Decrease in equity
• Decrease in income

Credit entries are ones that account for the following effects:

• Decrease in assets
• Decrease in expense
• Increase in liability
• Increase in equity
• Increase in income

Double Entry is recorded in a manner that the Accounting Equation is always in balance.

Assets - Liabilities = Capital

Any increase in expense (Dr) will be offset by a decrease in assets (Cr) or increase in liability or equity (Cr) and vice-versa. Hence, the accounting equation will still be in equilibrium. -