Every financial transaction affects at least two accounts — one debited and one credited. This 500-year-old system (invented by Luca Pacioli in 1494) ensures your books always balance and errors are caught automatically.
For every Debit, there must be an equal Credit
Total Debits = Total Credits — always.
| Account Type | Debit (Dr) | Credit (Cr) |
|---|---|---|
| Assets (Cash, Equipment, Receivables) | Increases ↑ | Decreases ↓ |
| Liabilities (Loans, Payables) | Decreases ↓ | Increases ↑ |
| Equity (Capital, Retained Earnings) | Decreases ↓ | Increases ↑ |
| Revenue (Sales, Service Income) | Decreases ↓ | Increases ↑ |
| Expenses (Rent, Salary, Utilities) | Increases ↑ | Decreases ↓ |
Memory trick (DEALER): Dividends, Expenses, Assets increase with Debits. Liabilities, Equity, Revenue increase with Credits.
Cash (Asset) ₹5,00,000
Owner's Equity ₹5,00,000
Why: Cash increases (debit), equity increases (credit).
Equipment (Asset) ₹1,00,000
Cash (Asset) ₹1,00,000
Why: Equipment increases, cash decreases. Both are assets — one goes up, one goes down.
Accounts Receivable ₹50,000
Sales Revenue ₹50,000
Why: Customer owes you (asset increases), revenue earned (equity increases via income).
Rent Expense ₹20,000
Cash (Asset) ₹20,000
Why: Expense increases (reduces equity), cash decreases.
Cash (Asset) ₹30,000
Accounts Receivable ₹30,000
Why: Cash increases, receivable decreases. Two assets swap.
| Feature | Single-Entry | Double-Entry |
|---|---|---|
| Records per transaction | One entry | Two entries (debit + credit) |
| Error detection | Difficult | Automatic (trial balance) |
| Financial statements | Cannot prepare complete statements | Full P&L, Balance Sheet, Cash Flow |
| Suitable for | Tiny personal businesses | All businesses (required by law for companies) |
| Audit readiness | Not auditable | Fully auditable |
| GST/Tax compliance | Insufficient | Fully compliant |
Every transaction has two sides — a debit and a credit of equal amount.
Assets and Expenses increase with debits. Liabilities, Equity, and Revenue increase with credits.
The accounting equation (Assets = Liabilities + Equity) always stays balanced.
Double-entry is the foundation of all modern accounting software — including Laabam.One.
Trial balance (sum of all debits vs credits) automatically catches entry errors.