What Are The Rules Of Double-Entry Bookkeeping?
Double-entry bookkeeping is a system where every transaction affects at least two accounts, maintaining the accounting equation. The fundamental rules include:
- Debits and Credits: Each transaction involves a debit entry in one account and a credit entry in another.
- Balance: The total debits must always equal the total credits.
The Accounting Equation
The accounting equation is the foundation of double-entry bookkeeping: Assets=Liabilities+Equity\text{Assets} = \text{Liabilities} + \text{Equity}Assets=Liabilities+Equity
What Are The Different Types Of Accounts?
The main types of accounts in double-entry bookkeeping are:
- Assets: Resources owned by the business.
- Liabilities: Obligations owed to others.
- Equity: Owner’s interest in the business.
- Revenue: Income earned from operations.
- Expenses: Costs incurred in earning revenue.
Advantages Of Double-Entry Bookkeeping
- Accuracy: Reduces errors through systematic recording.
- Completeness: Provides a comprehensive view of financial transactions.
- Accountability: Ensures all transactions are tracked and balanced.
Key Takeaways
- Definition: Double-entry bookkeeping records each transaction in two accounts.
- Accounting Equation: Assets = Liabilities + Equity.
- Types of Accounts: Include assets, liabilities, equity, revenue, and expenses.
- Advantages: Include accuracy, completeness, and accountability.
