Double-entry bookkeeping

📘 Double-Entry Bookkeeping – Complete Guide for Beginners & Pros

Double-entry bookkeeping is the fundamental principle of accounting that ensures every transaction affects at least two accounts, keeping the accounting equation balanced:

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

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🔁 Core Principle

Every debit must have a corresponding credit of equal value.

This method helps detect errors, ensures accuracy, and supports the creation of complete financial statements.

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🧾 Structure of a Double Entry

Component	Description
Debit (Dr)	What you receive or increase (e.g., assets, expenses)
Credit (Cr)	What you give or decrease (e.g., liabilities, income)

🔁 For Every Transaction:

$$\text{Total Debits} = \text{Total Credits}$$

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🧠 Golden Rules of Accounting

Account Type	Debit	Credit
Assets	Increase	Decrease
Liabilities	Decrease	Increase
Equity (Capital)	Decrease	Increase
Revenue/Income	Decrease	Increase
Expenses/Losses	Increase	Decrease

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💡 Examples of Double-Entry Transactions

1. Capital Introduced

Owner invests ₹1,00,000 in business:

Bank A/c ..................... Dr ₹1,00,000  
     To Capital A/c .................. ₹1,00,000

2. Purchase of Asset (e.g., Furniture)

Buy furniture worth ₹10,000 in cash:

Furniture A/c ................. Dr ₹10,000  
     To Cash A/c ...................... ₹10,000

3. Earned Revenue

Sold goods for ₹20,000 on credit:

Accounts Receivable A/c ... Dr ₹20,000  
     To Sales A/c .......................... ₹20,000

4. Paying Expenses

Paid ₹5,000 rent:

Rent Expense A/c .......... Dr ₹5,000  
     To Cash A/c ..................... ₹5,000

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📊 Impact on Financial Statements

Entry Affects	Example
Balance Sheet	Assets, Liabilities, Equity
Income Statement	Revenues, Expenses
Cash Flow	Via cash/bank account entries

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🧾 Trial Balance & Ledger

Double-entry makes it easier to:

• Create a trial balance

• Maintain accurate ledgers

• Detect posting errors (if debits ≠ credits)

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🧮 Advantages of Double-Entry System

✅ Ensures mathematical accuracy
✅ Reduces fraud and errors
✅ Forms basis for final accounts (P&L, Balance Sheet)
✅ Provides detailed tracking of transactions

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❌ Errors Still Possible (But Detectable)

Error Type	Example
Error of omission	Entire transaction not recorded
Error of principle	Wrong account used (e.g., treating asset as expense)
Compensating error	Two equal & opposite errors cancel out

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🧾 Summary Table

Transaction	Debit	Credit
Capital introduced	Bank	Capital
Asset purchase	Asset	Cash/Payables
Income earned	Receivable/Cash	Revenue
Expense paid	Expense	Cash/Payables