What is double-entry bookkeeping?
Definition of double-entry bookkeeping
Double-entry bookkeeping is the system that underpins your business's books. With double-entry bookkeeping, every time you post a transaction in your business's books it goes into at least two places within your records, once as a debit and once as a credit. This is why the system is called 'double-entry'.
Double-entry bookkeeping drives the whole of accounting, and if you enter everything correctly, it makes all the figures appear in the right places in your accounts.
Even if the transaction goes into more than one place in your accounts, the value of debit entries will always equal the value of credit entries for each transaction.
Examples of how double-entry bookkeeping works
If you buy a new computer, the amount you have in the bank reduces and the value of computers owned by your business increases.
If you sell some goods, the amount you have in stock goes down and the amount you have earned in sales goes up.
If you go to the post office and buy some stationery for £10 and some stamps for £2, the amount you have in the bank goes down by £12 (a credit), the amount you have spent on stationery costs goes up by £10 (a debit) and the amount you have spent on postage costs goes up by £2 (a debit). Both credits and debits for this transaction equal £12.
Double-entry bookkeeping software
FreeAgent is an example of powerful double-entry bookkeeping software providing journal entry support for both users and accountants. The software automatically builds real-time business accounts from the bank statements, invoices and expenses that you enter throughout the year.