16th October 2017

What is Double Entry Bookkeeping?

Double entry bookkeeping is the definitive way of ensuring that every transaction is captured and entered into your bookkeeping. It ensures that nothing is missed. It was designed and used in the Middle-Ages in Italy and became widespread. No system has ever replaced it. How does it work?

There are only 6 types of transactions in bookkeeping, so you need to understand the following formula:

P    –    Purchases                (items to be re-sold in a retail business)

E    –    Expenses                  (overheads or indirect expenses)

A    –     Assets                      (machinery, cash, vehicles, customers, etc.)

R    –     Revenue                  (sales)

L     –    Liabilities                 (money the business owes)

S     –     Source of Funds     (what’s left belongs to the business owner)

As long as you understand the above types of transactions, you should be able to do double entry bookkeeping.


By: Jackie Hooper