With double-entry bookkeeping, you create two accounting entries for each of your business transactions. But why? Are there always two? And where do the entries go? Let’s break it down.
Are there always two entries?
Double-entry bookkeeping gets its name because there are at least two entries for every transaction. There may be more. For example, a sale may:
- increase income
- lower inventory
- create a tax liability on the sales tax you collected
And it can get bigger than that. The more complex the transaction, the more entries there are.
How to do double-entry bookkeeping
Double-entry bookkeeping aims to track all the knock-on effects of a business transaction and reflect them in your business accounts. But what does that mean on a practical level?
To get a sense for it, you need to understand a little about: