The purpose of this article is to help you understand one of the basic concepts of accounting, that is, the double entry principle, which is applied in order to record business transactions in the books of the entity. Double-entry accounting is a method in which each transaction is recorded in two separate accounts, that is, in one account as a debit and in the other account as a credit. In other words, under the double-entry principle, every transaction that has a value added to the asset account also has a value subtracted from the liability account; These transactions are called credits. Rather, every transaction that has a value added to the liability account has a value subtracted from the asset account; These transactions are called debits.

The double-entry accounting principle is used more frequently than the single-entry principle, in which each transaction is recorded in a single account. It is most often used as it prevents many errors and quickly alerts the business to potential errors so they can be corrected in a timely manner. Since credits and debits must always be equal, that is, according to the essence of basic accounting concepts, there must be an equation between debits and credits, if there is ever a discrepancy between the value of credits and debits, it is an alert to the business that there has been an error recording the transaction on the company’s books. Thus, with the double-entry accounting principle, it is quick and easy to ensure that the accounts are always balanced. This principle is also useful for recording transactions separately and presenting adequate and accurate data to its users for purposes of making decisions related to the entity.

Example 1

Consider the following example of the double entry principle. Cut to the Chase, a beauty salon, buys hairbrushes in bulk once every quarter, the purchase is made on credit, that is, cash for the purchase made is paid later after the purchase. Most of the brushes cost $250. So, each quarter the Cut to the Chase accountant makes a $250 entry in the liability account (which adds to the value of the liabilities) and a $250 entry in the asset account (which adds to the value of the assets). ). Below you can see what the entries look like:

D Inventory (Assets) $250

C Accounts Payable (Liability) $250

Example 2

The following example is the use of the purchased brushes in the Cut to the Chase salon activities. Suppose that during the next quarter the company used all the purchased brushes in its activities, that is, expenses of $250 were incurred and assets decreased by $250. The accountant will record an entry of $250 in the assets account as a credit and an entry of $250 in the equity account as a debit, that is, the expenses as a decrease in equity. Below you can see what the entries look like:

D Expenses (Equity) $250

C Inventory (Assets) $250

As these examples show, the end result of the double-entry principle is that for every entry made into one account (i.e., liabilities or equity), an opposing entry must be made for the same amount of the original entry into the other account ( i.e. active). .