Double entry, also known as double-entry accounting, is a method of recording financial transactions in which every entry to an account requires a corresponding and opposite entry to a different account. The double-entry system is part of a broader framework of accounting known as accrual accounting, and is widely used by companies, governments, and non-profit organizations.
The basic concept behind double-entry accounting is that each transaction is recorded in two places simultaneously, thus creating a balance between the two accounts. This helps to ensure accuracy and also allows for the identification of errors, if any, that can be traced back to the original entry.
Double-entry accounting was first developed in the early 15th century by a Venetian monk named Luca Pacioli. Pacioli’s book, Summa de Arithmetica, Geometria, Proportioni et Proportionalità, contained the first published explanation of double entry accounting.
Double-entry accounting is based on the principle of debits and credits in which each transaction causes a debit in one account, and a credit in another account. Each transaction is entered twice, once as a debit and once as a credit to balance the books.
The double-entry system is used to process information using complex calculations in order to present a complete picture of a company’s financial health. It allows for the tracking of income and expenses, the monitoring of capital, and the determination of financial solvency. For these reasons, double-entry accounting is considered essential to the long-term monitoring of a business’s financial position.
Double-entry accounting systems are typically automated, with software programs designed to streamline and simplify the process of entering data into the system. With the complexity and speed of electronic systems, double-entry accounting allows companies to manage their finances quickly and efficiently.
