Double-Entry Accounting
Why every transaction has two sides
* Why This Matters
Single-entry accounting is like keeping score in a game by only writing down one team's points. You have no idea if the total makes sense, if someone cheated, or if the score is even real.
Double-entry accounting is like having a referee that catches every mistake before it becomes a problem. It's the reason accounting works.
This is the rule that makes the entire system bulletproof. Once you understand why every transaction must affect two accounts, you'll understand why accountants obsess over balance sheets and why a single penny out of place means something's wrong.
What Is Double-Entry Accounting?
Double-entry accounting is a system where every transaction is recorded in at least two accounts—a debit and a credit.
The Core Principle
For every transaction:
- 1.One account gets debited (left side increases or right side decreases)
- 2.One or more accounts get credited (right side increases or left side decreases)
- 3.Debits ALWAYS equal credits
Every transaction accounted for twice
Errors are visible immediately
Fraud is harder to hide
Equation always stays balanced
Why Double-Entry Works: The Logic
Imagine a simple transaction: You pay $1,000 in rent with cash.
Single-Entry (BROKEN)
Problems:
- Where did the $1,000 go? You don't know.
- Did you pay cash, credit card, or check? No way to tell.
- If someone steals $1,000, you wouldn't notice.
- Financial statements won't balance.
Double-Entry (CORRECT)
Now you know:
- You spent money on rent (expense tracked)
- That money came from cash (source identified)
- Debits ($1,000) = Credits ($1,000)
- Accounting equation stays balanced
Every detail is captured. Nothing is hidden.
Three Scenarios: How Double-Entry Handles Different Situations
1Earning Revenue (Two Accounts)
You complete a project and the customer pays $2,000 cash.
(You received cash because you earned revenue)
2Buying on Credit (Two Accounts)
You purchase $500 of supplies from a vendor and don't pay yet.
(You acquired supplies but owe the vendor)
3Paying Off Multiple Debts (Multiple Accounts)
You have $3,000 cash and pay $1,000 to the bank and $2,000 to a vendor.
(You reduced two liabilities by spending cash)
Real-World Example: Building a Business from Scratch
Let's trace through a new consulting business using double-entry accounting. Click each day to see the journal entry and balance sheet.
Balance Sheet After:
Assets
$50,000
Liabilities
$0
Equity
$50,000
Equation balanced
The Double-Entry System in Action
Why Double-Entry Prevents Errors and Fraud
Error: Recording Only One Side
Wrong:
What happened to the $5,000? Where did it come from? Incomplete!
Right:
Fraud Prevention: Stealing Cash
Someone steals $10,000 from petty cash.
With single-entry:
Cash shows $5,000. Might not notice the theft.
With double-entry:
- • Someone has to record a debit somewhere
- • If they debit "Misc Expense $10,000" — suspicious!
- • If they don't debit anything — won't balance!
Double-entry makes theft harder because you have to lie on two sides of the transaction.
Common Mistakes in Double-Entry Accounting
Mistake #1: Only Recording One Side
❌ WRONG:
(No credit—where's the money from?)
âś… RIGHT:
  Cash $1,000
Mistake #2: Debits and Credits Don't Equal
❌ WRONG:
  Cash $300
($500 ≠$300 — UNBALANCED!)
âś… RIGHT:
  Accounts Payable $200
  Cash $300
($500 = $500 — BALANCED!)
Mistake #3: Forgetting to Record the Full Story
❌ INCOMPLETE:
(Where did this come from?)
âś… COMPLETE:
  Service Revenue $2,000
(Now we know it's revenue!)
Key Takeaway
Double-entry accounting is the system that makes accounting bulletproof. Every transaction affects two or more accounts, debits always equal credits, and the accounting equation always stays balanced. This is why accountants catch errors and why fraud is hard to hide.
Test Your Understanding
Can you apply double-entry accounting? Try these practice questions.
Question 1: A business purchases $800 of inventory on credit. What is the correct journal entry?
Question 2: Which journal entry is UNBALANCED (debits don't equal credits)?
Question 3: You earn $3,000 in service revenue and the customer pays with a check (which you'll deposit later). What should you debit?
Question 4: True or False: It's okay to record a debit without a credit if you'll record the credit next week.
Question 5: You pay $500 in rent with cash AND put $100 on a credit card. How should this be recorded?
Ready to Practice?
You now understand why double-entry accounting works. The Practice Lab is where you'll apply it. Record complex transactions with multiple accounts, watch the system stay balanced, and see exactly why accountants love this system.
Try the Practice LabWhat's Next?
Now that you understand double-entry accounting, let's learn journal entries—the formal way to record these transactions in accounting.