What is double entry bookkeeping in simple terms?

It means recording both sides of every business transaction. Each debit has an equal credit. For example, buying equipment by bank transfer increases equipment and reduces the bank balance.

What is the golden rule of double entry, and which side is debit?

Total debits must equal total credits. Debit is the left side of a ledger account; credit is the right. Debits increase assets, expenses and drawings. Credits increase liabilities, income and capital. Neither word simply means money in or money out.

What is a ledger in accounting?

An accounting ledger is the collection of accounts that records business transactions and their balances. The general or nominal ledger brings together the accounts. Sales and purchase ledgers hold individual customer and supplier records.

Do sole traders need double-entry bookkeeping?

HMRC does not require sole traders or landlords to use double entry. Simple cash records can work where appropriate, provided records are complete and accurate. Double entry gives better control as a business grows. Making Tax Digital requires digital records for those within its scope.

Does accounting software do double entry for me?

Double-entry accounting software creates the matching debit and credit when you enter an invoice, bill or bank transaction. You still need to choose the right account, avoid duplicates and reconcile the bank. Software cannot tell whether every category is correct.

Double-entry bookkeeping explained (UK)

What is double-entry bookkeeping?

Every transaction is recorded twice: as a debit in one account and an equal credit in another. Total debits always equal total credits. This is double-entry bookkeeping, also called double-entry accounting or the double-entry system of accounting.

Single-entry bookkeeping is a simpler approach, such as a cash book recording receipts and payments. Double entry also tracks what you own, what customers owe you and what you owe suppliers. It explains where money came from and what happened to it.

The accounting equation: why the books balance

Assets = liabilities + capital (equity).

Assets are what the business owns or is owed. Liabilities are what it owes others. Capital, or equity, is the owner's interest after liabilities are deducted. Profits increase equity; losses and drawings reduce it.

Each transaction keeps this equation in balance. Putting your own money into the business increases both bank assets and capital. Buying equipment from the bank swaps one asset for another. Borrowing increases both bank assets and liabilities.

Debits and credits: which side increases an account?

Debit means the left side of an account. Credit means the right side. Neither simply means money in or money out. The effect depends on the account type.

Account type	A debit	A credit
Assets	Increases it	Decreases it
Expenses	Increases it	Decreases it
Drawings	Increases it	Decreases it
Liabilities	Decreases it	Increases it
Income	Decreases it	Increases it
Capital	Decreases it	Increases it

The DEAD CLIC memory aid groups the increases: Debit Expenses, Assets, Drawings; Credit Liabilities, Income, Capital. Drawings are an owner's withdrawals from an unincorporated business, not a business expense.

Five balanced double-entry examples

These examples ignore VAT so you can focus on the two sides.

1. The owner pays £5,000 into the business bank account

Debit bank £5,000 / Credit capital £5,000.

For a sole trader introducing their own money, bank assets and capital both increase. This is not sales income. A company would use share capital or a director's loan account, depending on the arrangement.

2. Buy a £1,200 laptop by bank transfer

Debit computer equipment £1,200 / Credit bank £1,200.

The equipment asset increases and the bank asset falls. Here the laptop is treated as a capital asset, with depreciation considered separately.

3. Invoice a customer £2,000 on 30-day terms

Debit trade debtors £2,000 / Credit sales £2,000.

Assuming the work is complete, income is recorded now. Trade debtors, also called accounts receivable, show the amount owed by the customer. No cash has arrived yet.

4. The customer pays the £2,000 invoice

Debit bank £2,000 / Credit trade debtors £2,000.

The bank balance rises and the customer's debt clears. Recording sales again would count the same income twice.

5. Receive a £300 supplier bill on credit, then pay it

On receipt: Debit repairs expense £300 / Credit trade creditors £300.

For a completed business repair, the expense increases. Trade creditors, or accounts payable, record the unpaid supplier bill.

On payment: Debit trade creditors £300 / Credit bank £300.

Payment clears the liability and reduces the bank balance. It does not create a second expense.

What is the ledger?

An accounting ledger is the organised collection of accounts holding your transactions and balances. When someone says "the ledger", they usually mean the general ledger. Ledger accounts group entries by purpose, such as bank, sales, rent or equipment.

General (nominal) ledger: The main set of accounts covering assets, liabilities, capital, income and expenses.
Sales ledger: Individual customer accounts showing invoices, payments and amounts still owed to you.
Purchase ledger: Individual supplier accounts showing bills, payments and amounts you still owe.

Sales and purchase ledger totals agree with their control accounts in the general ledger. A T-account is a simple drawing of a ledger account, with debits on the left and credits on the right.

What does a trial balance tell you?

A trial balance lists every ledger account balance at a particular date. Debit balances go in one column and credit balances in another. The totals must agree. A difference means something needs investigating.

Equal totals do not prove that everything is correct. Posting to the wrong account can still balance. So can omitting a whole transaction, or making equal errors on both sides. Review the records behind the figures as well.

The trial balance, after necessary adjustments, feeds the profit and loss statement and balance sheet. Income and expenses show performance; assets, liabilities and equity show the financial position. Read our guide to understanding profit and loss for the next step.

Does your business need double-entry bookkeeping?

Limited companies must keep adequate accounting records under the Companies Act 2006. In practice, their accounts are prepared on a double-entry basis. The law requires adequate records; it does not require a method called double entry by name. See GOV.UK guidance on company accounting records.

HMRC does not require sole traders or landlords to use double entry. Simple cash records can work, provided they capture the records needed for accurate accounts and returns. Double entry gives better control as the business grows, especially with unpaid invoices, supplier bills or borrowing.

Making Tax Digital requires digital records for businesses within its scope. Digital record keeping and double entry are different requirements. See HMRC's digital record guidance.

Double-entry accounting software handles the matching entries automatically when you record invoices, bills and payments. You still choose categories and check the results. Our accounting software comparison explains the options.

Common double-entry mistakes to avoid

Posting to the wrong account: A balanced entry can still misstate profit or assets. Check the category against the underlying invoice.
Mixing personal and business spending: Record personal items separately. For a sole trader, drawings do not reduce business profit.
Not reconciling the bank: Compare ledger entries with statements regularly. Follow our bank reconciliation guide.
Treating capital purchases as routine expenses: Equipment used over several years may need recording as an asset. Check the accounting treatment before posting.

Our bookkeeping service can help you keep the records behind your accounts organised.

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