Dual entry is the traditional method used with accounting whereby the debits equal credits in an entry for the journals. Traditionally, a trial balance is used to make certain the cumulative debits and credits from the dual entry process are in balance. The system of accounting is approximately 600 years old and over time has developed into our modern day form of economic transaction recording.
When bookkeepers face an unknown variable with a transaction and don’t know where to place the debit or credit, they use a temporary account to hold the value. This is called the ‘Suspense’ account. There is a suspense account for each of the types of accounts.
In the previous 25 lessons I covered a lot of different terms and this lesson is merely a summary of the various terms a bookkeeper encounters.
The balance sheet serves as an historical report. It identifies the accumulated change in value since inception. The balance sheet is organized into two halves and both sides must be equal in value. In addition, the balance sheet is a snapshot of the financial condition at a single moment in time along the lifetime timeline of the company.
Many bookkeepers are initially misinformed about the dual entry accounting system. They think that based on the wording that accounting entries have only two lines of information, one line for a debit and a second line for a credit. What the words dual entry mean is that debits must equal credits.
Expense types of accounts are the easiest to understand in bookkeeping. In general only debits are entered in expense types of accounts.
Many bookkeepers are confused about how an entry is made to the books of record for a business. Well to more easily understand this, the bookkeeper needs to understand the difference between a journal and a ledger as they pertain to bookkeeping.
In accounting the term dual entry is used often. Other names include Double Entry and Offsetting Entry. It refers to the process of entering an economic transaction as an equation. Remember in math an equation refers to a two sided mathematical statement. Examples include 4= 2 X 2 or more complex equations such as E= MC squared.
The trial balance is an accountant’s report used to identify issues with the respective ledger accounts. In general, the trial balance sums all the debits and credits in the footer section and the accountant verifies that the total debits equal total credits. This confirms proper entry in the dual entry accounting system.
