Double-entry bookkeeping sounds intimidating, but the idea is simple: every transaction is recorded twice, once as a debit in one account and once as a credit in another, and the two always match. It is the system behind almost every set of accounts, and it is how errors get caught.
The accounting equation
Everything starts from one equation:
Assets = Liabilities + Equity
- Assets are what the business owns, such as cash, money owed by customers and equipment.
- Liabilities are what it owes, such as loans and supplier bills.
- Equity is what belongs to the owner: money put in plus profits kept.
Debits and credits
A debit and a credit are just the left and right sides of an entry. They do not mean “good” or “bad”. Here is how they affect each type of account:
- Assets and expenses: a debit increases them, a credit decreases them.
- Liabilities, equity and income: a credit increases them, a debit decreases them.
Worked examples
You sell something for £100 and the customer pays at once
- Debit Bank £100 (asset increases).
- Credit Sales income £100 (income increases).
You send an invoice for £500 that is not yet paid
- Debit Accounts receivable £500 (what you are owed).
- Credit Sales income £500.
You pay £60 for software
- Debit Software expense £60.
- Credit Bank £60.
You buy a £1,000 laptop on credit
- Debit Equipment £1,000 (asset).
- Credit Accounts payable £1,000 (liability).
The trial balance
If every entry has equal debits and credits, then the total of all debits equals the total of all credits. A trial balance lists every account’s balance so you can check this. If the two sides differ, there is an error to find.
Why it matters
- It catches mistakes, because the books must balance.
- It gives you a profit and loss and a balance sheet from the same entries.
- It is what accountants, banks and HMRC expect.
Do you need to do it yourself?
No. Accounting software makes both entries for you. You create an invoice, record a payment or reconcile a bank line, and the debits and credits are posted automatically. Manual journals are there for the occasional adjustment, such as drawings or depreciation. See the chart of accounts and journal entries.
How AvrioBooks helps
AvrioBooks is real double-entry accounting underneath, with a general ledger, journals and a trial balance. See double-entry accounting software and the guide to reading a balance sheet.
Frequently asked questions
What is double-entry bookkeeping?
A system where every transaction is recorded twice, as a debit in one account and a credit in another, so the books always balance.
What is the accounting equation?
Assets equal liabilities plus equity.
Do I need to understand debits and credits to use accounting software?
No. Software posts both sides automatically when you create invoices, record payments and reconcile your bank.
What is a trial balance?
A list of every account's balance, used to check that total debits equal total credits.
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