I must be misunderstanding something when trying to research this topic because I genuinely do not understand to point of DE bookkeeping?
To me, DE shows the exact same information that single entry bookkeeping does. In single entry you have Debit (an expense) or Credit (an income) and for each purchase or income you write a single line with how much money is involved, and that number gets added or subtracted from the balance.
But from what I can tell, in DE bookkeeping, you write the exact same thing, but then you have a second line with the exact same amount in the other column. So for example if you make a purchase of $500 for books, in one line you write “Books | Debit: $500 | Balance: $XXXX” and then in a line immediately underneath it you write “Books | Credit: $500 | Balance: $XXXX” which all can be summarized in single-entry by saying “Books | -$500 | Balance: $XXXX”?
So other than maybe proof reading by “balancing the books” to make sure both columns add up to the same amount, I can’t or don’t understand if there’s any actual difference? Can anyone help?
In: Economics
What helped me understand it was this equation:
Assets = Liabilities + Equity
This equation is the foundation of all modern accounting.
– Assets are the things that business owns
– Liabilities are the money that the business owns
– Equity is the amount of wealth the owner of the business has
This equation must always be in balance. Always. So if you get a $5,000 cash payment from a customer (asset) it either goes to paying a bill (liabilities) or increases the wealth of the owner (equity). This means that the $5,000 gets entered twice – one on each side of the equation – hence double entry book keeping.
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