Double-entry Accounting

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Double-entry accounting is a method of documenting business expenses and revenue by entering every single transaction as a debit and credit. The way this operates is every transaction involves adding or subtracting money from two different accounts. For example, if XYZ Co. paid its monthly lease of $10,000, it may credit its cash account and debit its expenses $10,000 each. This method of bookkeeping helps prevent errors because every transaction must be documented twice, and it allows errors to be more apparent. Another argument for using the double-entry method is it has a more detailed outline of how money is being received and used by a company because it separates transactions into multiple accounts. Accountants typically express the function of double-entry accounting as: assets = liabilities + equity; this means at all times the assets should be equal to the liabilities and equity, otherwise an error has occurred.

[Last updated in January of 2022 by the Wex Definitions Team]