Executive Summary - Double-Entry Bookkeeping

In accountancy, the double-entry bookkeeping (or double-entry accounting) system is the basis of the standard system used by businesses to record financial transactions. The modern double-entry bookkeeping system was first codified by the Italian mathematician Luca Pacioli, in his Summa de arithmetica, geometrica, proportioni et proportionalità (Venice, 1494). Its premise is that a business' financial condition and results of operations are best recorded in accounts. Each account maintains a "history" of changes in monetary values about a particular aspect of the business.

This system is called double-entry because each transaction is recorded in at least two accounts. Each transaction results in at least one account being debited and at least one account being credited, with the total debits of the transaction equal to the total credits.

For example, if Business A sells an item to Business B and Business B pays Business A by cheque, the bookkeeper of the Business A would credit the account called "Sales" and debit the account called "Bank". Conversely, the bookkeeper of Business B would debit the account called "Purchases" and credit the account called "Bank".