Double-entry bookkeeping

What the two entries are

Every transaction moves value from somewhere to somewhere. A payment for rent reduces cash and increases an expense. A sale on credit increases the amount customers owe and increases income. A loan increases cash and increases what is owed to a lender. In each case the two halves are the same size, because the same value is being described from two directions.

The traditional names for the two directions are debit and credit. They are not moral terms and they do not mean increase and decrease; which one increases a given account depends on what kind of account it is. Their only real function is to give the two halves of a transaction opposite signs so that everything sums to zero.

Why it survives

The method is several centuries old and has outlasted every technology it was written for, because it solves a problem that does not change: a record made by people will contain mistakes, and mistakes need to be detectable. A single-entry list can lose a line without any trace. A double-entry record cannot lose one half of a pair without the totals separating.

Modern software does the entries invisibly, which is convenient and slightly unfortunate. When a package refuses to accept an entry or reports that something does not balance, it is applying this rule, and the message is much easier to act on if the rule is understood rather than merely obeyed.

One transaction, recorded twice

  Machine bought for cash, 1,200

    Equipment                +1,200
    Cash                     -1,200
                            -------
    Net effect on totals          0

Illustration only. Round figures are used so that the two halves can be compared directly.