Double-entry bookkeeping is the method behind almost every modern accounting system. Each transaction is recorded in two accounts: one is debited, one is credited, for the same amount. Because both sides are always recorded, the books stay in balance.
The accounting equation
Everything rests on one equation:
Assets = Liabilities + Equity
What the business owns equals what it owes plus what belongs to its owners. Every transaction changes at least two parts of this equation in a way that keeps both sides equal.
Debits and credits
A debit is an entry on the left side of an account; a credit is an entry on the right. Neither means "good" or "bad". What each does depends on the account type:
| Account type | Debit | Credit |
|---|---|---|
| Asset (cash, stock, receivables) | Increases | Decreases |
| Liability (payables, loans) | Decreases | Increases |
| Income (sales) | Decreases | Increases |
| Expense (rent, salaries) | Increases | Decreases |
| Equity (capital) | Decreases | Increases |
Worked examples
1. You sell goods for 10,000 on credit. Debit Accounts Receivable 10,000; credit Sales 10,000.
2. The customer pays by bank transfer. Debit Bank 10,000; credit Accounts Receivable 10,000.
3. You buy stock for 6,000 on credit. Debit Stock (Inventory) 6,000; credit Accounts Payable 6,000.
4. You pay office rent of 2,000 in cash. Debit Rent Expense 2,000; credit Cash 2,000.
In every case total debits equal total credits.
Why it matters
- Error detection. If debits and credits do not match in the trial balance, something is wrong.
- Complete reporting. The Profit & Loss and Balance Sheet come straight from the same entries.
- Audit trail. Each entry points to two accounts, so you can trace where money came from and went.
How software helps
In Onyx Bills, invoices, purchases, payments, expenses and contra entries post their double entries automatically, and manual journal vouchers only post when debit equals credit. See Onyx Bills features, and our guide to the chart of accounts.
Frequently asked questions
Do small businesses really need double-entry?
If you hold stock, owe money to vendors, have customers on credit or file GST or VAT returns, double-entry gives you reliable numbers. Software does the work, so you do not need to think in debits and credits for everyday entries.
What is a journal entry?
A journal entry is a manual record of a transaction with at least one debit and one credit that balance. It is used for adjustments that no invoice or payment creates.
What happens if debits and credits do not match?
The entry should not be posted. Accounting software normally refuses to save an unbalanced journal.
This guide is general information, not accounting, tax or legal advice. Rules and rates change, so confirm the current position with a qualified professional.