Double-entry bookkeeping
Also called double entry, double-entry accounting.
Recording every transaction as equal debits and credits in at least two accounts, so the books always balance.
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What it is.
In double-entry bookkeeping, money never appears or disappears. Every transaction moves value from one account to another, so each one has at least one debit and one credit, and the totals are equal. If the sum of all entries is not zero, something is wrong.
Software ledgers use the same rule. A customer payment debits the cash account and credits the customer's balance; a fee moves value from the customer to a revenue account.
Why it matters
The balancing rule is a built-in error check. Bugs that create or lose money show up immediately as an imbalance, instead of months later in an audit. It also gives finance teams records they can use directly.
In a product build
Designing accounts and posting rules for each money flow, with database checks that every transaction balances, is one of the first pieces of a fintech or marketplace build.
Common mistakes.
- 01
Single-entry tables that record a payment once, with nothing to balance against.
- 02
Allowing a transaction to be written partly, so one side exists without the other.
- 03
No clear chart of accounts, so similar money ends up in different places.
Work it out with a tool.
Related terms.
- LedgerThe record of every movement of money in a system, kept so that any balance can be explained entry by entry.
- ReconciliationChecking that two records of the same money agree, such as your ledger and the bank or provider's statement, and explaining every difference.
- Settlement (payments)The point when money for a payment actually moves into the receiver's account, after the payment was approved and cleared.
- Maker-checker (four-eyes principle)A control where one person makes a change and a different person must approve it before it takes effect.
Guides and pages
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