Debits & Credits
Double Entry Accounting SystemWhat are Debits & Credits?
The primary function of debits & credits is to show a flow of money or value from one account to another.
How They Work
Suppose you were keeping the accounting records for a retail store that had just opened.
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You could attempt to keep those records by simply recording the business’s sales and costs.
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The problem is a business may make many transactions during an accounting period.
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While it is easy to record transactions with a simple system, it is very difficult to check them reliably.
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If only some of these transactions are incorrect, your period-end accounting records will be unreliable and totally useless.
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The Double Entry Accounting System
To overcome this problem, businesses use the double-entry accounting system.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/dc6.jpg)
This system wasn’t designed to make recording simple.
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Instead, it was designed with checking in mind.
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With the double-entry system, you still record sales and costs.
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By using a double entry, however, you record a duplicate record of those transactions in other accounts, as well.
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This duplicate record is in a convenient format for checking.
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It allows for fast, easy, and reliable checking against the records of other businesses.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/dc12.jpg)
By checking these accounts alone, you can make sure your entire record of sales and costs is correct.
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© R.J. Hickman 2020