Good bookkeeping is the backbone of any business—but knowing where to start can feel overwhelming. One of the most important foundational concepts in accounting is the double entry system. If you're responsible for your business’s finances, understanding how double entry accounting works can help you stay compliant, improve accuracy, and make better financial decisions.
This guide walks you through the basics of double entry accounting—what it is, how it works, and why it matters for your business’s financial health.
What is double entry accounting?
Double entry accounting is a bookkeeping system where every financial transaction affects at least two accounts—one debit and one credit. This approach ensures the accounting equation (Assets = Liabilities + Equity) always remains balanced.
Why double entry accounting is important
Double entry accounting plays a vital role in ensuring the accuracy and integrity of your financial data. It allows businesses to:
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Track the source and use of funds
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Detect errors or inconsistencies
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Maintain compliance with accounting standards
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Produce detailed financial statements like the balance sheet and income statement
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Cut down on admin and get back to what matters with Budgetly’s resources. 
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Key principles of double entry accounting
The system is based on three core principles:
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Every transaction affects two or more accounts
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Total debits must equal total credits
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The accounting equation must always remain in balance
How the double entry system works
Let’s say your business makes a $1,000 sale on credit. In double entry accounting:
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Debit: Accounts Receivable +$1,000
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Credit: Sales Revenue +$1,000
Later, when the customer pays:
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Debit: Cash +$1,000
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Credit: Accounts Receivable -$1,000
This method gives you a complete picture of both your income and outstanding receivables.
Understanding debits and credits
The terms “debit” and “credit” can be confusing, but they serve as the backbone of this accounting method.
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Debits (DR) increase asset or expense accounts and decrease liabilities or equity.
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Credits (CR) increase liability, equity, or revenue accounts and decrease assets or expenses.
Common accounts used in double entry accounting
Here are some typical accounts used in the system:
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Assets: Cash, inventory, accounts receivable
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Liabilities: Loans payable, accounts payable
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Equity: Owner’s equity, retained earnings
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Revenue: Sales, service income
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Expenses: Rent, salaries, utilities
Benefits of using double entry accounting
The system provides several advantages:
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Accurate financial tracking and reporting
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Clear audit trails for compliance
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Fewer accounting errors
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Better visibility into the financial health of the business
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Enables preparation of financial statements required for tax and reporting
What to watch out for
While double entry accounting is reliable, it's not immune to errors. Common pitfalls include:
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Misclassifying accounts
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Failing to reconcile regularly
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Over-relying on automation without checks
It's important to conduct regular reviews and ensure all transactions are entered correctly to maintain data integrity.
How Budgetly supports accurate bookkeeping
Budgetly doesn’t replace your accounting software—but it makes it easier to feed in accurate data by helping teams track, categorise, and report on expenses in real time.
With Budgetly, you can:
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Issue physical and virtual prepaid cards to employees
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Set budgets and spending limits by team or category
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Capture receipts instantly and attach them to transactions
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Automatically categorise expenses
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Sync transactions with accounting platforms like Xero
This ensures that when transactions hit your accounting system, they’re already matched with receipts and categorised correctly—reducing reconciliation time and supporting better double entry accounting practices.
Looking ahead: Building stronger financial foundations
Mastering double entry accounting isn’t just a bookkeeping exercise—it’s a foundation for long-term business success. By accurately tracking income and expenses, you gain a clearer understanding of your company’s financial position and ensure better compliance and reporting.
With expense management tools like Budgetly in your financial tech stack, maintaining that accuracy becomes easier and more efficient. It’s time to build confidence in your numbers and support smarter decisions across the business.
Schedule a demo with us today, or watch a 10-minute recorded demo!
