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Concept
Double-entry bookkeeping
Summary
Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry to a different account. The double-entry system has two equal and corresponding sides known as debit and credit. A transaction in double-entry bookkeeping always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. The purpose of double-entry bookkeeping is to allow the detection of financial errors and fraud.
For example, if a business takes out a bank loan for 10,000 to an asset account called "Cash", as well as a credit of $10,000 to a liability account called "Loan Payable".
The basic entry to record this transaction in a general ledger will look like this:
Double-entry bookkeeping is based on balancing the accounting equation. The accounting equation serves as an error detection tool; if at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. However, satisfying the equation does not guarantee a lack of errors; the ledger may still "balance" even if the wrong ledger accounts have been debited or credited.
History of accounting
The earliest extant accounting records that follow the modern double-entry system in Europe come from Amatino Manucci, a Florentine merchant at the end of the 13th century. Manucci was employed by the Farolfi firm and the firm's ledger of 1299–1300 evidences full double-entry bookkeeping. Giovannino Farolfi & Company, a firm of Florentine merchants headquartered in Nîmes, acted as moneylenders to the Archbishop of Arles, their most important customer. Some sources suggest that Giovanni di Bicci de' Medici introduced this method for the Medici bank in the 14th century, though evidence for this is lacking.
Official source
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