Double-entry accounting is a system that ensures every financial transaction affects at least two accounts in a way that keeps the accounting equation balanced:
Assets = Liabilities + Equity

In this method, each transaction is recorded with a debit in one account and a credit in another. The total amount debited must always equal the total amount credited. This dual effect provides a built-in system of checks and balances, making errors easier to detect and financial statements more accurate.

For example, if a company purchases $1,000 of office equipment using cash, the equipment account (an asset) is debited $1,000, while the cash account (also an asset) is credited $1,000. One asset increases, the other decreases—keeping the books balanced.

Double-entry accounting is the foundation of modern bookkeeping and is essential for generating reliable financial statements, such as the balance sheet, income statement, and cash flow statement. It provides a clear picture of a company’s financial health and performance, making it easier for owners, managers, and investors to make informed decisions.

This method is used by businesses of all sizes and is required under generally accepted accounting principles (GAAP) and international standards. It ensures transparency, accountability, and accuracy in financial reporting.