Double Entry Accounting

From Financial Literacy Wiki

Double Entry Accounting is an accounting method where each transaction is recorded in at least two accounts. Each transaction results in at least one account being debited and at least one account being credited, with the total debits of the transaction equal to the total credits.

If a business's assets increase, then the relevant asset account is debited. Therefore, if a business receives money, its assets have increased, and so the account called "Bank" is debited. If the money received was because the business had taken out a loan, the account that would be credited is the liability account called "Loan". This latter point demonstrates that when liabilities are increased, the affected liability account is credited.