Double-entry bookkeeping

Summary:

Due to the need to balance the accounting equation  dual entries are required for every transaction (to balance the books)

History:

Luca Pacioli wrote about this principle, for the first time in the book – Everything about Arithmatic, Geometry and proportions (one of the first books to be printed by Gutenbergs)

Luca Pacioli - The father of accountancy

Example:

Assets = Liabilities + Owners Equity

£1000 = £500 + £500

Purchasing buy a box of widgets for £100 that are to be sold. The company agree to supply us the widgets and bill us later.

We now have acquired an asset (the widgets). We have also taken on a liability (the £100 bill for the widgets). After this transaction the accounting equations looks like this:

Assets = Liabilities + Owners Equity

£1100 = £600 + £500

You will note that there is no change to owner equity (this is derived from the calculation Assets-Liabilities=Owner Equity)

T – Accounting

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