Double-entry in five minutes

Double-entry bookkeeping records every movement of money twice: once as a debit and once as a credit, with the same total on each side. That rule is why Sapita can show a balance sheet that always balances. This lesson walks through one example.

The idea in one sentence

Every transaction changes at least two accounts, and the amounts on the two sides are equal. When the company pays for something, one account goes down and another goes up by the same amount.

A first example

The owner pays €2,500 of share capital into the company bank account.

• The bank account, an asset, goes up by €2,500. That is a debit.
• Share capital, part of equity, goes up by €2,500. That is a credit.

Total debits are €2,500 and total credits are €2,500, so the books balance.

A second example

The company buys office supplies for €100 and pays from the bank account.

• Office expenses go up by €100. That is a debit.
• The bank account goes down by €100. That is a credit.

The bank balance is now €2,400. The expenses for the year are €100 higher, and the books still balance.

What to remember

• Debits sit on the left and credits on the right. Whether a debit makes an account bigger or smaller depends on the type of account.
• A journal entry needs equal debits and credits. Sapita does not post an entry where they differ.
• A posted entry is never edited. A correction is a reversal, followed by a new entry.