Double-Entry Bookkeeping in Accounting: Two Sides to Every Transaction
Double-entry bookkeeping records every transaction in at least two accounts: a debit in one and a credit in another, for the same total. Because total debits always equal total credits, the accounting equation, assets equal liabilities plus equity, stays in balance after every transaction.
General information, not tax advice. We do not file your tax returns, and we do not give tax, legal or financial advice. Confirm your own situation with your accountant or the Canada Revenue Agency.
The Bookkeeping Service keeps books this way: "Real double-entry books, not a spreadsheet with a nicer interface."
Which side each account increases on, at a glance
| Account type | Increases with | Decreases with | Normal balance |
|---|---|---|---|
| Assets | Debit | Credit | Debit |
| Expenses | Debit | Credit | Debit |
| Liabilities | Credit | Debit | Credit |
| Equity | Credit | Debit | Credit |
| Revenue | Credit | Debit | Credit |
Source: Introduction to Financial Accounting for Corporations, sections 2.3 and 2.6, an open textbook on eCampusOntario (CC BY-NC-SA 4.0).
What is double-entry bookkeeping?
Double-entry bookkeeping is the rule that every transaction touches at least two accounts, and that the two sides always balance. Introduction to Financial Accounting for Corporations puts the whole idea in one sentence: "This equality is the essence of double-entry accounting, where every transaction affects at least two accounts, and the equation is always in balance after each transaction."
The two sides have names. The same textbook says "Increases and decreases in accounts, resulting from transactions, are referred to as debits and credits in accounting." Nothing enters the books one-sided: if something goes up, something else has to answer for it.
A transaction is first recorded in the journal, which the OpenStax text calls "the first place information is entered into the accounting system". Posting then carries each debit to the debit column of its account in the general ledger, and each credit to the credit column. Our pillar on journal posting in accounting walks through the journal, the chart of accounts and the ledger one by one.
How does the accounting equation keep the books balanced?
The accounting equation is assets equal liabilities plus equity, and double entry is what keeps it true. The eCampusOntario text states it plainly: "Everything a company owns must equal everything the company owes to creditors (lenders) and owners (individuals for sole proprietors or shareholders for companies or corporations)."
Because the equation must hold, no single number can change on its own. In the textbook's words, "If one item within the accounting equation is changed, then another item must also be changed to balance it."
The same chapter draws the consequence: "When financial transactions are recorded, the combined effects on assets, liabilities, and equity are always exactly offsetting. This is the reason that the balance sheet always balances."
For an owner who has not incorporated, the textbook's statement of owner's equity runs "Beginning Balance + Investments +Net Profit (loss) – withdrawals".
Which accounts increase with a debit, and which with a credit?
Debits sit on the left of an account and credits on the right. Which one is the increase depends on the account; the textbook says "The type of account (assets, liabilities, etc.) determines whether an increase or a decrease in a particular transaction is represented by a debit or a credit."
For assets and expenses, the rule reads "For financial transactions that affect assets, dividends, and expenses, increases are recorded as debits, and decreases are recorded as credits." Dividends are a corporation's word: the book describes them as "payments from equity to shareholders."
Liabilities, equity and revenue run the other way; the same section continues: "For financial transactions that affect liabilities, share capital, and revenues, increases are recorded by credits and decreases by debits". Share capital is the owners' investment in a corporation, so it sits in equity.
So a debit is not good news and a credit is not bad news; each is a side, and which side means "more" depends on the account. Paying a supplier is a debit to the amount you owe them, because that liability goes down, and a credit to cash, because that asset goes down.
What is a normal balance?
An account's normal balance is the side it increases on. The textbook's definition is short: "A normal balance is the side on which increases occur." Assets and expenses normally carry debit balances; liabilities, equity and revenue normally carry credit balances.
A balance on the unexpected side is called an abnormal balance, and it is a prompt to look rather than a disaster. The textbook's example is a supplier account showing more debits than credits, a situation that "may occur due to an overpayment to a supplier or an error in the recording process."
What does a double entry look like?
Every entry has the same shape: at least one debit, at least one credit, and, in OpenStax's words, "The dollar value of the debits must equal the dollar value of the credits or else the equation will go out of balance."
Example: a $1,200 laptop bought on account, then paid
Example, with illustrative amounts. A business buys a laptop for $1,200 on the supplier's terms and pays the bill a month later. That is two transactions, and each is recorded on two sides:
| Entry | Debit | Credit | What changed |
|---|---|---|---|
| 1. Laptop arrives, bill unpaid | Equipment $1,200 | Accounts payable $1,200 | An asset up, a liability up |
| 2. The bill is paid | Accounts payable $1,200 | Cash $1,200 | A liability down, an asset down |
After entry 1, both sides of the equation have grown by $1,200. After entry 2, both have shrunk by $1,200: the debt is gone and so is the cash that paid it. Equipment keeps its $1,200, Accounts payable is back to zero, and Cash is $1,200 lower.
Both entries pass the eCampusOntario textbook's test: "Every transaction has at least one debit and one credit, and the total debits must equal the total credits." That book counts equipment among assets and describes accounts payable as "debts owed to creditors for goods purchased or services received".
If you would rather never draw a T-account, the Bookkeeping Service keeps these entries for you; every plan is on the pricing page.
What does a trial balance check, and what can it miss?
The eCampusOntario text defines a trial balance as "a list of all accounts in the general ledger that have nonzero balances," and states the test: "The total debits must equal the total credits on the trial balance." When the totals differ, "there is a mistake in at least one of the columns."
Balanced totals prove the arithmetic, not the judgment. The same chapter warns that the trial balance "does not ensure that each item has been recorded in the proper account." It does not ensure that every item was entered either, and a transaction can be recorded more than once. "Any or all of these errors could occur, and the trial balance would still balance."
How a mistake is found and corrected once it has posted, and whether a posted entry can be changed at all, is covered in the pillar on how a posted entry is corrected. The errors worth watching for are in common bookkeeping mistakes.
What does the CRA say about your bookkeeping system?
For a sole proprietorship or a partnership, the Canada Revenue Agency's business records page does not name a system. It says: "The Canada Revenue Agency (CRA) does not issue record books nor suggests any type of book or set of books. There are many record books and bookkeeping systems available."
What the same page does require is the records themselves: "You are required by law to keep records of all your transactions to be able to support your income and expense claims." That page is written for sole proprietorships and partnerships; if you run a corporation, confirm with your accountant which guidance applies to you.
So on that page, double entry is a choice rather than a CRA instruction, and its case rests on the check it builds in. More on what the CRA expects from your records is in our guide to CRA bookkeeping requirements.
How the Bookkeeping Service keeps double-entry books
Our service page sums up the output: "Documents in, validated double-entry records out, with reports and tax figures your accountant can work from directly."
Before anything posts, the same page says: "You send receipts and invoices, AI prepares each accounting entry, deterministic rules validate it before it posts, and a human reviewer settles anything uncertain." When the AI is not confident, the entry does not post; it "goes to a review queue worked by a trained reviewer on our staff, who opens the source document and decides the treatment."
Once an entry has posted, it stays posted: "Every write goes through one posting engine. A posted entry is frozen. If something is wrong, the fix is a reversal and a repost, both numbered and both visible in the register."
Who does this work day to day is the subject of what a bookkeeper does.
Frequently asked questions
Does the CRA require double-entry bookkeeping? Its business records page for sole proprietorships and partnerships names no system: the CRA "does not issue record books nor suggests any type of book or set of books." It does require records that support your claims.
Does a debit always mean an increase? No. A debit increases assets and expenses, and decreases liabilities, equity and revenue. The type of account decides which.
Can the books balance and still be wrong? Yes. A trial balance shows that the totals agree, not that each amount sits in the right account. The eCampusOntario text lists a wrong account, a missing entry and a duplicate, and says "Any or all of these errors could occur, and the trial balance would still balance."
Do I still need an accountant? Yes. Our service page is direct about the split: "Your accountant does year-end, adjusting entries and tax work." The books are kept current through the year so that work starts from finished records.
Read next: journal posting in accounting, explained.
When you would rather the double entries were kept for you
The Bookkeeping Service keeps double-entry books through the year: you send receipts and invoices, each entry is validated before it posts, and anything uncertain goes to a trained reviewer on our staff. "Your accountant does year-end, adjusting entries and tax." We do not file your tax returns, and we do not give tax, legal or financial advice.
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