In double-entry bookkeeping, every transaction is recorded in two places that balance each other. It sounds like extra work, but it is why accountants can trust a set of books, and why mistakes tend to show up instead of hiding.
The idea
Money does not appear from nowhere. When something comes in, it came from somewhere. Double-entry records both sides: where the value went (a debit) and where it came from (a credit). The two always add up to the same number.
The five kinds of account
- Assets: what the business owns, such as cash, money customers owe you, and equipment.
- Liabilities: what the business owes, such as bills to suppliers and tax owed.
- Equity: what is left for the owner after liabilities.
- Income: money earned from customers.
- Expenses: costs of running the business.
Debits increase assets and expenses. Credits increase liabilities, equity and income. The reverse reduces them.
An example: one invoice, two entries
You invoice a customer ₦100,000. At that moment you have earned income, and you are owed money.
- Debit Accounts Receivable ₦100,000 (an asset: money owed to you goes up).
- Credit Sales Income ₦100,000 (income goes up).
When the customer pays, you debit Cash ₦100,000 (your bank balance goes up) and credit Accounts Receivable ₦100,000 (they no longer owe you). The debits and credits balance both times.
Why it is worth it
- Errors show up. If the debits and credits do not match, something is wrong.
- You get a balance sheet and a profit and loss report from the same data.
- Corrections leave a trail. You reverse an entry instead of erasing it.
Do I have to do this by hand?
No. In KudiBooks, creating an invoice, recording a payment or entering a bill posts the matching journal entries automatically. You only open the journal when you or your accountant want to look, or to make an adjustment.
Questions
What is the difference between single-entry and double-entry?
Single-entry records each transaction once, like a cash diary. Double-entry records it twice, which allows the books to check themselves and produce a balance sheet.
Do small businesses need double-entry?
It is not required for everyone, but it is the standard method, it makes accountants’ work easier, and software can do it for you without extra effort.