double-entry bookkeeping

Definition

System of keeping accounting records that recognizes the dual nature (source and disposition) of every financial transaction expressed by the basic accounting equation (Assets = Liabilities + Owners' Equity). In this system, every transaction is entered twice in the account books—first, to record a change in the assets' side (called a 'debit') and, second, to mirror that change in the equities' side (called a 'credit'). If all entries are recorded accurately, the account books will 'balance' because the total of debit entries will equal the total of credit entries. Double entry bookkeeping is used universally, except in very small or cash-transactions based firms which use 'single entry bookkeeping.' Invented in the 13th century by Venice merchants, it was formalized by the Italian monk Luca Pacioli (1445-1517) in the 1494 book 'Summa de Arithmetica, Geometrica, Poroportioni et Proportionaltie.'