There are 3 major components to the double-entry method in bookkeeping.

What Are the Rules of Double-Entry Bookkeeping? Why Is Double-Entry Bookkeeping Important?.What Are the Rules of Double-Entry Bookkeeping?.This system is a more accurate and complete way to keep track of the company’s financial health and how fast it’s growing. Small businesses with more than one employee or looking to apply for a loan should use double-entry accounting. Public companies must use the double-entry bookkeeping system and follow any rules and methods outlined by GAAP or IFRS (the differences between the two standards are outlined in this article). The International Accounting Standards Board (IASB) is a non-governmental body that sets the International Financial Reporting Standards (IFRS) for official accounting rules and methods used outside of the United States. They decide on the generally accepted accounting principles (GAAP), which are the official rules and methods for double-entry bookkeeping. Who Uses the Double-Entry System?įor businesses in the United States, the Financial Accounting Standards Board (FASB), is a non-governmental body. This is because her technology expense assets are now worth $1000 more and she has $1000 less in cash. She credits her technology expense account for $1,000 and debits her cash account for $1,000. The total debits and credits must balance (equal each other).įor example, a copywriter buys a new laptop computer for her business for $1,000. A debit is made in at least one account and a credit is made in at least one other account. What Is Double-Entry Bookkeeping?ĭouble-entry bookkeeping is an accounting method where each transaction is recorded in 2 or more accounts using debits and credits. If you need income tax advice please contact an accountant. NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. This means cash and outstanding debt are now increased by the same amount. For example, if a business takes out a $5,000 loan, the cash (asset) account is debited to $5,000 and the outstanding debt (liability) account is credited $5000. Double-entry bookkeeping is an accounting system where every transaction is recorded in two accounts: a debit to one account and a credit to another.

Bookkeeping meaning