Double-entry bookkeeping

Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping in which every financial transaction is recorded with equal and opposite entries (debits and credits) - thus "balancing the books". The purpose of double-entry bookkeeping is to maintain accuracy in financial records and allow detection of errors or fraud. The basis of double-entry bookkeeping is the accounting equation: A s s e t s = L i a b i l i t i e s + E q u i t y {\displaystyle \mathrm {Assets} =\mathrm {Liabilities} +\mathrm {Equity} } Every transaction recorded will keep this equation in balance. For example, a company can buy a new piece of equipment (increasing an asset), it can spend cash (reducing an asset) or take on a loan (increasing a liability). Based upon where an account sits within the accounting equation determines its normal balance - in this example, a debit to assets increases assets, whereas a credit to liabilities increases liabilities. The use of double-entry bookkeeping is a standard process for tracking business transactions that improves the ability of the users of financial information to read, process, and understand the financial picture of a company's operations. As the complexity and volume of transactions increases, companies use ledgers and accounting information systems to automate the tracking of individual transactions and to create financial statements.