# Double-Entry Bookkeeping

Business I · Accounting I · https://tryals.app/learn/business-i/double-entry-bookkeeping

## Every Story Has Two Sides

**Double-entry bookkeeping** is the mechanical discipline keeping the accounting equation true. **Every transaction is recorded as at least two entries**, a **debit** and a **credit** of equal amount, so $\sum \text{debits} = \sum \text{credits}$.

The vocabulary is counter-intuitive. **Debit** and **credit** are not good and bad; they are column labels: **left and right**.

| Account type | Debit (left) | Credit (right) |
| --- | --- | --- |
| **Asset** | Increase | Decrease |
| **Expense** | Increase | Decrease |
| **Liability** | Decrease | Increase |
| **Equity** | Decrease | Increase |
| **Revenue** | Decrease | Increase |

**The mnemonic pattern**: left-side family (assets, expenses) grows with debits; right-side family (liabilities, equity, revenue) grows with credits.

## Mechanics in Action

A **T-account** is the visual tool: account name on top, debits on the left limb, credits on the right. The **balance** is the difference between sides.

**Example**: pay a 200 supplier invoice.
- Debit: Accounts Payable 200 (liability decreases).
- Credit: Cash 200 (asset decreases).
Both equation sides fall by 200.

**The duality principle** links entries to the equation: equal debits and credits preserve balance automatically. If you record only one side, the trial balance screams.

**Common pitfall**: Importing everyday meanings. A debit to Cash is money arriving. Your bank statement uses the bank's perspective, reversing this logic.

## Practice questions

8 of this lesson's 13 practice questions, with answers. The full set is in the app.

### 1. Double-entry emerged among Venetian merchants in the 1300s and outlived every accounting technology since. What property explains its survival?

A. It is faster to record than single-entry bookkeeping
B. Redundancy that self-checks: most errors break the constraint
C. It produces a profit figure, which single-entry cannot
D. It was legally mandated, which prevented alternatives from emerging

**Answer:** B. Redundancy that self-checks: most errors break the constraint

**Why:** The duplicate entry is deliberate redundancy, and redundancy is what turns a ledger into an error-detecting code, the same principle as a checksum. It costs twice the writing and catches most mistakes automatically, which is why Pacioli's description of it in 1494 still describes modern systems.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/double-entry-emerged-among-venetian-merchants-in-the-1300s-and

### 2. A trainee books a purchase: Dr Cash 300, Cr Inventory 300. What went wrong?

A. The debits and credits are reversed
B. The amount should be doubled
C. Nothing, the entry balances and is correct
D. Cash is never debited

**Answer:** A. The debits and credits are reversed

**Why:** Buying inventory increases the inventory asset (debit) and decreases cash (credit). The trainee recorded the mirror image, a balanced entry that tells the wrong story.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/a-trainee-books-a-purchase-dr-cash-300-cr-inventory-300-what-went

### 3. Which statements about double-entry bookkeeping are true?

A. Every transaction generates at least two entries
B. If the trial balance agrees, no errors are possible
C. Total debits must equal total credits in every entry
D. A debit always means the firm gained something

**Answer:** A. Every transaction generates at least two entries; C. Total debits must equal total credits in every entry

**Why:** Duality and balance are the two rules. But debit does not always mean gain (debiting an expense is a loss), and a balanced trial balance can still hide reversed entries, offsetting errors, or omissions.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/which-statements-about-double-entry-bookkeeping-are-true

### 4. Order the steps of recording a credit sale (the customer pays later).

**Answer:**

1. Deliver goods to the customer
2. Dr Accounts Receivable, Cr Sales Revenue
3. Customer pays 30 days later
4. Dr Cash, Cr Accounts Receivable

**Why:** Two events, two entries. At sale: the asset switches from inventory to a receivable and revenue is born. At collection: the receivable converts to cash. Revenue was already recorded at sale, not at collection.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/order-the-steps-of-recording-a-credit-sale-the-customer-pays-later

### 5. Crediting an asset account decreases it, while crediting a liability increases it. Why do the two behave in opposite directions?

A. Because the convention was inherited from Venetian practice and has no logic
B. Because credits always represent money leaving the business
C. Because liabilities are recorded at settlement value and assets at cost
D. Because they sit on opposite sides of $A = L + E$

**Answer:** D. Because they sit on opposite sides of $A = L + E$

**Why:** Debit and credit are left and right of an identity. Once the equation is held in mind the rules stop needing memorisation, they are forced by keeping both sides equal.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/crediting-an-asset-account-decreases-it-while-crediting-a-liability

### 6. A cash account starts at 500, receives debits of 300 and credits of 120. **Estimate the closing balance.**

**Answer:** 680 (within ±15)

**Why:** $500 + 300 - 120 = 680$. Debits (inflows) and credits (outflows) give the net movement; the balance is always the running total of the dominant side.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/a-cash-account-starts-at-500-receives-debits-of-300-and-credits-of

### 7. Which accounts grow with a debit, and which with a credit?

**Answer:**

- Grows with debit: Cash (asset), Rent Expense, Equipment (asset)
- Grows with credit: Accounts Payable (liability), Sales Revenue, Share Capital (equity)

**Why:** Assets and expenses are the left-side family (debit to increase). Liabilities, equity, and revenue are the right-side family (credit to increase). Learn the family, and the rule covers every account.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/which-accounts-grow-with-a-debit-and-which-with-a-credit

### 8. Match each double-entry term to its meaning.

**Answer:**

- Debit → An entry on the left side of the T-account
- Credit → An entry on the right side of the T-account
- T-account → A visual ledger showing debits and credits
- Duality principle → Every transaction has two equal and opposite entries

**Why:** Left, right, the visual tool, and the rule that ties them. No moral connotation, just columns.

Page: https://tryals.app/practice/business-i/double-entry-bookkeeping/match-each-double-entry-term-to-its-meaning