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Many businesses require a professional who knows how to keep track of the numbers — otherwise known as an accountant Several types of accounting can provide a clear view of each transaction’s fiscal impact on a business.

Double-entry accounting is a way of documenting business expenses that involves entering every single transaction as both a debit and a credit. This way, each financial transaction results in two equal effects.

The basic accounting equation is: Assets = Liabilities + Equity. If a business has an increase on one side of the equation, it will simultaneously experience an increase on the other side.

The of double-entry accounting was in 1494. Luca Pacioli, the “,” used this form of accounting for his business ventures and documented it in his book Summa de Arithmetica. It’s important to note that he didn’t invent it, but he wrote it down so that others could use what he called the “Venetian method.”

Over the years, this type of accounting has become the gold standard for many businesses because of its accuracy and transparency. The paired records of debits and credits track the dual nature of each transaction: Every time money moves, it transfers from one place to another.

A business’s record books, then, must be balanced. Total debits should always equal total credits.

Single-entry accounting is a simplified method that mainly tracks cash flow — much like a bank register. It often involves four steps:

1.��   Writing down the date the money changes hands

2.��   Noting a brief description of what the money is for

3.��   Adding any money coming in or subtracting any money going out

4.��   Calculating the new running balance of money in the account

Single-entry accounting can be a good option for freelancers; “solopreneurs,” or people who are the only employees in their own business; or small businesses that don’t have many transactions.

The risks of this type of accounting include:

• There are no financial statements.
• Bookkeeping can be susceptible to errors and fraud.
• It doesn’t track assets or liabilities.

While double-entry bookkeeping can be significantly more complex than single-entry, it reduces a business’s risks for error because each side of the ledger has to balance with the other side. It enables generation of financial statements, and it’s also required for businesses that follow Generally Accepted Accounting Principles (GAAP).

While single-entry accounting is sufficient for individual proprietors, and large corporations can retain an accounting team to handle more complex bookkeeping, small businesses are stuck in the middle. They may need to guard more closely against potential audits but not have the resources to hire professionals.

Here are some steps they can use to implement a double-entry system:

• Connect their bank with their payment processors
• Use automated systems to assign accounts to specific categories
• Attach receipts and invoices to each transaction
• Create invoices that record both revenue and accounts receivable entries
• Reconcile the accounts on a regular basis

It’s important that anyone who implements double-entry accounting understands how debits and credits work for businesses.

In personal banking, a debit means money is leaving the account, while a credit means money is entering it. In business accounting, it’s the opposite: A debit, which is recorded on the left side of the ledger, indicates money that enters the account. A credit, recorded on the right side of the ledger, refers to money leaving the account.

Businesses use a T-account — a visual tool shaped like a T with debits on the left and credits on the right — to track how financial transactions affect a specific account. The acronym DEALER helps when one is trying to remember what is recorded on either side of the ledger:

D: Dividends – A portion of the company’s net profits distributed to its shareholders

E: Expenses – Costs incurred by a business to maintain operation

A: Assets – Resources owned by the company that hold measurable value

L: Liabilities – Debts the business owes to outside parties

E: Equity – The value of a business’s assets after all liabilities are deducted

R: Revenue – The total money a business earns before deducting any expenses

A debit on the left side, DEA, increases the number of dividends, expenses and assets in the account. A credit on the right side, LER, increases the amount of liabilities, equity and revenue in the account.

For example, if a business purchases a computer for $1,500 on a credit card, it would record $1,500 on the left side of the ledger as a debit; the new computer is now an asset. At the same time, it records the $1,500 as a credit on the right side of the ledger, because it’s now a liability in the credit card payable account.

A chart of accounts typically lists all the individual accounts in a company’s ledger. A small business might have only 20 accounts, while a large corporation could be managing hundreds or even thousands of accounts.

Asset accounts are resources the company owns. Examples could include:

• Cash
• Office supplies
• Machinery
• Building
• Furniture
• Automobiles
• Copyrights

Liability accounts are debts owed to other companies or individuals. Examples could include:

• Accounts payable
• Salaries payable
• Interest payable
• Rent payable
• Unearned consulting fees
• Estimated vacation pay liability

Equity accounts represent the assets a company has invested in its business. Examples could include:

• Cash dividends
• Stock dividends
• Owner’s capital
• Retained earnings

Revenue accounts are the various ways in which the company brings in money. Examples could include:

• Rent
• Dividends
• Sales
• Earnings from investment
• Fees earned from a specific product

Expense accounts are the costs incurred by the business. Examples could include:

• Salaries
• Rent
• Employees’ benefits
• Truck rental
• Advertising
• Property taxes
• Utilities

When they are constructing a journal entry in a double-entry accounting system, accountants usually:

• Identify the date
• Choose the accounts involved
• Determine the amounts for debit and credit, and record the debit on the left side of the ledger and the credit on the right side
• Write a brief description of the transaction
• Apply a reference number — a unique identifier that makes it easier to track the individual transaction 

The accounting cycle typically has eight steps:

1.��   Identify transactions: Gather receipts and bank statements to find all of the business’s financial events in the designated time period. In some cases, companies may want to link their accounting software to point-of-sale technology.

2.��   Make journal entries: Enter each event in a ledger. This is where double-entry accounting first comes into play — two entries for each transaction.

3.��   Post to the general ledger: Group transactions by specific accounts to view running totals for each account.

4.��   Prepare a trial balance: Add account balances to make sure total debits equal total credits. This step exists primarily to make sure there were no mistakes in the first three steps before moving on.

5.��   Adjust entries: Make adjustments for financial events that are out of order, such as a rent payment that’s due at the end of the month.

6.��   Prepare an adjusted balance: With adjustments factored in, calculate the new balance, checking again to make sure there are no errors.

7.��   Create financial statements: Use the final numbers to build an income statement, balance sheet and cash flow statement. Taken together, these reports will provide an accurate picture of the business’s financial health for that time period.

8.��   Close the books: Now that the financial period is over, the accountant can reset the balance to zero in preparation for the next period.

The accounting cycle should not be confused with the budget cycle, which is forward-looking and predicts performance for a given year. Instead, the accounting cycle analyzes transactions that have already occurred, using actual amounts.

The entire cycle is important for businesses because it both helps them understand their financial performance and ensures they are following tax regulations.

Aspiring accountants and other business students can benefit from learning about double-entry accounting and other specialized accounting methods. �鶹��ý offers online business degrees and certificates, including:

• Bachelor of Science in Accounting
• Bachelor of Science in Accounting with an Associate of Arts with a concentration in Business Fundamentals
• Graduate Accounting Certificate

Contact an admissions representative for more information.��