Double-entry bookkeeping

For example, if a business takes out a bank loan for $10,000, recording the transaction in the bank's books would require a DEBIT of $10,000 to an asset account called "Loan Receivable", as well as a CREDIT of $10,000 to an asset account called "Cash".

For the borrowing business, the entries would be a $10,000 debit to "Cash" and a credit of $10,000 in a liability account "Loan Payable".

The basic entry to record this transaction in the example bank's general ledger will look like this: Double-entry bookkeeping is based on "balancing" the books, that is to say, satisfying the accounting equation.

(However, satisfying the equation does not necessarily guarantee a lack of errors, for example, the wrong accounts could have been debited or credited.)

The earliest extant accounting records that follow the modern double-entry system in Europe come from Amatino Manucci, a Florentine merchant at the end of the 13th century.

Giovannino Farolfi & Company, a firm of Florentine merchants headquartered in Nîmes, acted as moneylenders to the Archbishop of Arles, their most important customer.

Before this there may have been systems of accounting records on multiple books which, however, did not yet have the formal and methodical rigor necessary to control the business economy.

Benedetto Cotrugli (Benedikt Kotruljević), a Ragusan merchant and ambassador to Naples, described double-entry bookkeeping in his treatise Della mercatura e del mercante perfetto.

The printer shortened and altered Cotrugli's treatment of double-entry bookkeeping, obscuring the history of the subject.

[5][6] Luca Pacioli, a Franciscan friar and collaborator of Leonardo da Vinci, first codified the system in his mathematics textbook Summa de arithmetica, geometria, proportioni et proportionalità published in Venice in 1494.

[7] Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it.

[8][9][10] In early modern Europe, double-entry bookkeeping had theological and cosmological connotations, recalling "both the scales of justice and the symmetry of God's world".

Irrespective of the approach used, the effect on the books of accounts remains the same, with two aspects (debit and credit) in each of the transactions.

If there are only a relatively small number of transactions it may be simpler instead to treat the daybooks as an integral part of the nominal ledger and thus of the double-entry system.

Assets, Expenses, and Drawings accounts (on the left side of the equation) have a normal balance of debit.