What Is Double Entry Bookkeeping?

Double entry bookkeeping is the basic
fundamental aspect using in bookkeeping. All computerised bookkeeping
software uses the basic principle of double entry bookkeeping in the
processing of transactions and its a skill you need to know if you
want to use these software programs.

A lot of people think they can just
enter transactions without understanding the double entry bookkeeping
that is taking place but if you need to enter journals to make
adjustments which at times is necessary, without learning the basic
principles you will simply get your self confused and your accounts
in a mess.

Its easier that you think to understand
as its a basic underlying principle that for every debit there is an
equal sized credit (or combination of credits) and for every credit
there is an equal sized debit (or combination of debits).

Think of it as balancing a scale. You
need a equal weight on each side to balance.

So for example I buy some stock for
£200 and pay by cash. My stock purchase is a debit for £200 and so
my petty cash account must have a credit of £200 posted.

The main thing I find that confuses
people is if you pay money into your bank account it is deemed as a
credit yet when preparing accounts it would be a debit on the
accounts, why?

Well the answer is that its a debit
from the banks point of view, if I pay money into a bank account I
become a creditor of the bank and as such my money is a liability to
them (i.e. they owe me that money) and liabilities are a credit so
from the banks point of view I am a liability and they credit that
account, when we prepare business accounts that same money is an
asset of our business and assets are a Debit, therefore we debit the
business accounts in order to accurately show our asset.

I tend to find the acronym DEAD CLIC is
the easiest way to remember whether I need a Credit or Debit.

DEAD is Debit, Expenses, Assets,

CLIC IS Credit, Liabilities, Income,

So we Debit our expenses, assets and
drawings and Credit our Liabilities, Income and Drawings.

This was one of the first things I
learnt when I attended a bookkeeping course and I still use it today
as there are times you just have to think back to basics no matter
how often you use the skills.


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