double entry bookkeeping system example

The double-entry bookkeeping system is a fundamental accounting method that ensures the accuracy of financial records. In this system, every transaction is recorded in two accounts: a debit in one account and a credit in another. This process maintains the accounting equation (Assets = Liabilities + Equity) and helps prevent errors, ensuring that financial statements are balanced. For example, when a business purchases inventory on credit, the inventory account is debited, and accounts payable is credited. Double-entry bookkeeping provides a clear, organized, and reliable financial picture of a business, crucial for audits, tax filing, and financial reporting.