![]() That system is based on an underlying structure of accounts, and a strange and unique system of recording that uses left and right instead of plus and minus-a system we call debits and credits. Double-entry accounting was invented to meet this need. While that may sound like a long time ago, accounting may have roots that trace. Pacioli described double-entry bookkeeping in his Summa de Arithmetica, Geometria, Proportioni et Proportionalita back in 1494. We need a systematic way to keep things organized and to make sure we are accurately recording and reporting transactions. Double-entry is an accounting principle that ensures that the accounting equation remains balanced at all times. For some, the first name that might come to mind when referencing early accounting history is Luca Pacioli. While this sounds simple enough, businesses are tracking thousands of transactions in a hundred different categories. ![]() If we want to know how much rent we paid last year, we can then simply pull up our Rent Expense account to see the total of that one category. Every time we record an entry in the cash account for rent expense on our building, we also create an account called Rent Expense to record each rent transaction. It was invented by the merchant venturers of Venice. In business, we set up accounts for similar transactions that we want to track and summarize. Double-entry book-keeping is the standard accounting practice for recording financial transactions. ![]() What if you wanted to know the total amount you spend getting your hair done during the year? You’d have to sort through each monthly statement looking for those charges and hope you recognize them when you see them and that you don’t miss one, or count one twice by accident. While a bank balance simply shows cash in and out, the business set of accounts also includes entries to show how that cash came to be in the bank and how it was spent.įor instance, if you look at your own bank account, you might see the rent payment to your landlord some payments to the grocery store, the barber or hair salon and books purchased from the bookstore or online, but you are only looking at one account for one month. The right side is the credit and the left side is the debit. Double-entry books have two opposite and corresponding entries that are known as credit and debit. All the transactions of a company are maintained in this book. All the data that runs through the bank account is recorded in the company account as well. A double-entry system refers to the system in which the accounts are maintained in a book. In order to do that, we use accounts to summarize data. As human cultures and social relationships evolved, bookkeeping evolved with them. The goal of both bookkeeping and accounting is to turn massive amounts of raw data into useful information in the form of financial reports. What you’ll learn to do: Identify the basic reporting structure of accounting information
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