What is double-entry accounting?

Double-entry accounting is a foundational concept in accounting that requires each financial transaction to be recorded in at least two accounts. This method is based on the principle that every financial transaction affects the accounting equation: assets equal liabilities plus equity. For instance, when a company makes a sale, it will record the revenue in one account while also reflecting the increase in cash or accounts receivable in another account. This dual entry helps maintain the balance of the accounting equation and ensures that the financial statements provide an accurate picture of a company's financial status.

By requiring two entries for every transaction—one debit entry and one credit entry—double-entry accounting significantly reduces the likelihood of errors and increases the reliability of financial records. This method provides a comprehensive view of a company's financial health and facilitates accurate financial reporting and analysis.