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The double-entry system is a fundamental accounting method that records financial transactions in at least two accounts, ensuring that the accounting equation remains balanced. This system is based on the principle that every transaction has at least two entries – a debit and a credit – to maintain the equality of debits and credits in the accounting records.

In the double-entry system:

  1. Debit: This is the left side of an account. Increases in assets, expenses, and losses are recorded as debits.

  2. Credit: This is the right side of an account. Increases in liabilities, revenues, and gains are recorded as credits.

The double-entry system ensures that the accounting equation (Assets = Liabilities + Equity) is always in balance. Every transaction involves both a giving and receiving aspect, maintaining the equilibrium in the accounting records. This system provides a comprehensive and accurate way to track the financial health of a business and is widely used in accounting practices around the world.