Accountancy

Double-entry bookkeeping is an accounting system that ensures every financial transaction affects at least two accounts, maintaining the accounting equation:

Assets = Liabilities + Equity.

In this system, each transaction is recorded in two parts: a debit and a credit. The total debits must always equal the total credits, providing a method to check for accuracy.

Key Concepts:

1. Debits and Credits:
   • Debits increase asset or expense accounts and decrease liability or equity accounts.
   • Credits increase liability, equity, or revenue accounts and decrease asset or expense accounts.
2. Ledger Accounts:
   • Every transaction affects two or more ledger accounts. For instance, when a business purchases equipment with cash, the equipment (asset) account is debited, and the cash (asset) account is credited.
3. Balances:
   • By recording both sides of the transaction, double-entry bookkeeping creates a balanced system. The sum of all debits must equal the sum of all credits at any given time.

Example:

Suppose a business buys a computer for ₹1,000 in cash:

• Debit the Equipment account (an asset) by ₹1,000.
• Credit the Cash account (another asset) by ₹1,000.

This system provides a detailed, accurate financial picture, minimizes errors, and ensures that the financial statements (balance sheet, income statement) are always balanced.