Finance... Double-Entry Bookkeeping... in 90 seconds (or less)

To a class of trainee accountants, nothing quite generates an adolescent giggle like your introduction to double-entry. but behind the mirth, double-entry bookkeeping is a somewhat beautiful thing. Double-entry reflects that every transaction in a business generates not one accounting outcome but two.

Accordingly, if a business purchases stationery, this is both an expense in the profit and loss account and a reduction in your cash balance as a result of the purchase. When you make a sale, your turnover goes up by the value of the sale, and either your cash goes up by a corresponding amount or if the purchase is made on account, your debtors will go up. When a debtor pays what is owed, the debtor amount goes down and the cash amount goes up. It's all very elegant.

The reason why this works is that a balance sheet must of course balance, or put another way

Equity = Assets - Liabilities

Since the equation is axiomatic, a change in any one part of the equation such as an increase in assets must be accompanied by a change in another part of the equation such as an increase in equity. Accordingly, it really is quite elegant and its use dates back to at least 1340.

Clearly there is much more to accounting than just this but double-entry is the cornerstone of how accounting works, and if you've heard the term but were afraid to ask, hopefully this post shows you how simple the idea is... in 90 seconds or less.