Double-entry bookkeeping

Double-entry bookkeeping is a kind of accounting system governed by certain rules which ensure that each transaction that takes place is reflected under two separate accounts. In more concrete terms, this makes use of a system of debits and credits. Such a system is in accordance with the idea that equity may be computed by subtracting liabilities from assets. Therefore, any change in one area translates into an equal but opposite change in another column.

One of the advantages of using such a system is that errors in accounting may easily be detected. If, for example, the computation for debits does not correspond with that of the credits, the books are said to be unbalanced, and a mistake has been made. However, it is still possible, although somewhat unlikely, for the books to be balanced despite the existence of some errors. This can happen if errors were made in the computation for both debits and credits, and one served to cancel out the other.

On the other hand, single-entry bookkeeping is an accounting system under which every transaction is recorded in a single line only. This is a very simple method which is commonly used in the check book records. Since one transaction is recorded in a single line only, this already includes information on the date of the transaction, the type of transaction, the amount debited or credited, and so on. While this system may be insufficient for big businesses, it may be quite useful for small ventures, as well as for individuals who simply wish to keep a record of financial activity.