As the financial year would have ended, an auditor would be able to easily review the documented statistics and decide the financial condition of the company. This technique of bookkeeping simplifies the creation of financial statements. In the case of a real account, debit what comes in and credit what goes out.Īdvantages of Double Bookkeeping Technique.Debit the receiver, credit the giver for personal accounts.The rules for the various types of accounts are as follows: There are rules to follow when posting double-entry transactions in the bookkeeping process.The benefit is received by debit, and the benefit is provided by credit.The debt is written on the left, and the credit is written on the right.The following are the principles to be followed when recording the double-entry bookkeeping system: For the transactions to be balanced, the total of debits and credits must be equal. A transaction's debit entry will be on the left side of the general journal, while the credit entry will be on the right. The main rule for entering a double-entry system is to debit the receiver and credit the giver. On the other hand, revenue, equity, and liabilities accounts have a credit balance. In double-entry bookkeeping, asset accounts (such as cash, equipment, and inventory) and expense accounts have a debit balance. At the same time cost of goods sold (an expense account) increases (is debited) and inventory decreases (credited). When you have a sale, the sales account increases (is credited), and the cash account increases (is debited). On the other hand, if you bought equipment on credit, the equipment account would be debited (increase) while the payables/debit account would be credited (increase).ĭebit means the left side of the account and credit means the right side of the account.īy debiting one account and crediting another account, equality of debits and credits is maintained. While double-entry bookkeeping may seem like a complex system, it is actually quite simple and efficient once you get the hang of it. In this way, the books remain balanced and all transactions are accounted for. On the Owner's Equity side of the ledger, the transaction would be recorded as an increase in owner's equity. On the Cash side of the ledger, the transaction would be recorded as a decrease in cash. For example, when a business owner withdraws cash from the business bank account, this transaction would be recorded in both the Cash account and the Owner's Equity account. In double-entry bookkeeping, transactions are recorded in two different accounts in order to maintain balanced books.
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