The principles of double-entry bookkeeping

As the name implies, double-entry bookkeeping requires each financial transaction to be recorded in two locations within the accounting records of the organisation. This is due to the recognition that there is a dual aspect to each t ransaction: that the organisation both receives and gives value wh en the transaction is made. For example, a business buying a machine with a cheque for $10,000 not only receives a machine costing $10,000 but also gives a cheque for $10,000. In terms of the accounting equation we can see that the in crease in one asset (machine + $10,000) is matched by the decrease in another asset (bank balance - $10,000). If the business sells goods for $4,000 to a customer paying by cheque, the business both gives goods valued at $4,000 and receives a cheque for the same amount. The accounting equation stays in balance as the asset of the bank balance increases
The double-entry bookkeeping system
The dual aspect of the accounting equation, as we have seen, applies to every financial transaction of the organization, and this should be recorded by the business in the double-entry bookkeeping system. The entries are made in a ledger, which is a collection of individual records known as accounts. There is no limit to the number of accounts which a business can open.


An account, in its simplest form, can be represented by two lines, forming a letter 'T'. Such accounts are often known as T accounts.