A Business Owner's Guide to Double-Entry System

Updated: 5 days ago



Principle of duality

Every economic event has two aspects – effort and reward, sacrifice and benefit, source and use - that offset or balance each other. Each transaction must be recorded at least one debit and one credit so that monetary value of debits and credits are equal. The whole system is always in balance.

The T Account


The T Account is used to analyze the transactions.

Debit is commonly abbreviated Dr.

Credit is commonly abbreviated Cr.

Footings, the total of each side are computed.

The difference between the debit side and the credit side is the account balance, either debit or credit.

Analyzing and Processing Transaction

Every transaction affects at least two accounts. For each transaction, one or more accounts must be debited and one or more accounts must be credited. Also, total debits must be equal total credits.

Accounting equation: Assets = Liabilities + Stockholder’s Equity

The rules of accounts can be shown as follows:


Application of Debit/Credit Rules to Stockholder’s Equity

Assets = Liabilities + Common Stock + Retained Earnings – Dividends + Revenues – Expenses

The accounting equation can be rearranged to shift dividends and expenses to the left side.

Assets + Dividends + Expenses = Liabilities + Common Stock + Retained Earnings + Revenues

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