Discuss the Double-Entry System

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Business Finance

Question Description

What is the double-entry system? Please share some examples of how debits and credits are applied using the double-entry system. Using numerical values, please illustrate.

200 words

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Explanation & Answer

A double entry system of accounting or bookkeeping means every business transaction will involve two accounts . 

For example recording earnings of a certain amount would require making two entries . A debit entry to an account called 'cash' and credit entry to an account called 'income' . 

Reggie pvt limited purchased a car by taking loan of 4000$ from bank . 


Reggie pvt limited acquires an assent worth 4000$ . This is debit effect . 

Reggie pvt limited has now a liability if 4000$ . This is the credit effect . 

If Reggie put limited Payne debt of 1000$ that it owes to dealer then , 

Effect -

A 'liability' account called 'accounts payable' decreases by 1000$ . This is debt effect . 

The bank account (an asset) also decreases by 1000$ . This is the credit effect . 

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