Double Entry – Let’s start at the very beginning!

For anyone looking to understand the basics of accounting then double entry is the starting point. It’s not a particularly sexy subject but it’s a concept that really underpins modern accounting.

We could start with a history lesson about how modern day accounting came about but frankly it’s a bit bland (check out this Wikipedia link if it really interests you :p).

The Double Entry Concept

The concept of double entry is actually quite simple. In essence each transaction in the accounts creates two entries with the sum of the entries always being equal or in balance. This helps to ensure that you always have a picture of what the business owns versus what it owes. Let’s look at an example:

When you start a limited company one of the most common starting points is to inject some cash into the business. So let’s say you issue 100 shares of £1 as your initial share capital. The double entry here would be that you would now hold an asset off £100 (the cash paid into the bank) and a liability for the same £100 (in the form of share capital).

It’s a bit like physics!

If you did physics at school then you should remember the phrase ” for every action there is an opposite reaction” and that’s kind of how it works with double entry. Most people can generally accept that part of the double entry concept but people tend to get confused when you start to introduce debits and credits into the fold! (Perhaps that should be the subject of our next blog post?).

We’re going to leave double entry here for now. It is a fundamental concept that really you just grow to accept but if you do have any questions regarding this then please drop them in the comments section below