What is double-entry accounting?

Double-entry accounting is a foundational concept in financial accounting that requires every financial transaction to affect at least two accounts. This method ensures that the accounting equation—Assets = Liabilities + Equity—remains balanced and reinforces the principle of duality, meaning that every debit entry must have a corresponding credit entry of equal value.

This system not only helps maintain accuracy in financial records but also enhances the reliability of financial reporting by providing a comprehensive view of each transaction's impact on the overall financial position of a business. For example, when a business sells merchandise, it will record an increase in revenue (or cash) and a corresponding increase in equity, ensuring that the financial statements accurately reflect the state of the company's finances.

The focus on duality is what distinguishes double-entry accounting from other systems, such as single-entry accounting, which only tracks transactions in one account and does not provide the same level of analytical insight or error detection. Thus, the approach supports better financial management and decision-making.