Double-entry bookkeeping records every transaction twice: once for where the money came from and once for where it went, so total debits always equal total credits. That single rule is why a balance sheet balances, why a trial balance can catch an error, and why QuickBooks, Xero and Sage all use it under the hood even when the screen shows you a simple invoice form. This guide gives the rule, the five entries almost every small business posts, how to see them inside QuickBooks, and what breaks when a file drifts away from the system.
Everything in double-entry hangs off one identity: Assets = Liabilities + Equity. What the business owns equals what it owes to lenders and suppliers plus what it owes to its owners. Revenue increases equity; expenses decrease it. Because both sides of the equation must stay equal, no transaction can touch only one account. Buy a laptop with cash and one asset (cash) goes down while another (equipment) goes up. Buy it on a card and an asset goes up while a liability goes up by the same amount. The equation holds either way, and that is the whole trick.
The IRS does not require any particular bookkeeping system, only records that clearly show income and expenses, but its own small-business guide describes the double-entry system as the one with built-in checks and balances. That is the practical reason to use it: a single-entry cashbook can be wrong and look fine; a double-entry ledger that is wrong usually stops balancing.
A debit is an entry on the left side of an account; a credit is an entry on the right. Neither means “good” or “bad”, and neither means “increase” on its own. What a debit does depends on the type of account it lands in:
| Account type | Debit does | Credit does | Normal balance |
|---|---|---|---|
| Assets (cash, receivables, inventory, equipment) | Increases | Decreases | Debit |
| Expenses (rent, wages, software, cost of goods) | Increases | Decreases | Debit |
| Liabilities (payables, credit cards, loans, sales tax owed) | Decreases | Increases | Credit |
| Equity (owner investment, retained earnings, draws are a contra) | Decreases | Increases | Credit |
| Revenue (sales, service income, interest earned) | Decreases | Increases | Credit |
The memory aid most bookkeepers carry is DEA / LER: Debits increase Expenses and Assets; credits increase Liabilities, Equity and Revenue. Every entry has at least one debit and at least one credit, and the two columns must total the same. An entry can have three or more lines (a sale with sales tax is the classic case) as long as the totals match.
Most of a year’s bookkeeping is a handful of patterns repeated. Learn these five and the rest are variations. Amounts are illustrative.
Debit Accounts Receivable 2,000 · Credit Service Revenue 2,000. An asset (what the customer owes you) goes up and equity goes up through revenue. Nothing touches cash yet, which is exactly why accrual books show income before the money arrives.
Debit Cash 2,000 · Credit Accounts Receivable 2,000. One asset replaces another; revenue is not recorded again. Recording the deposit as income a second time is the most common way a file over-states sales, and it is what QuickBooks’ Undeposited Funds account is designed to prevent when it is used correctly.
Debit Equipment 6,000 · Credit Cash 1,000 · Credit Loan Payable 5,000. Three lines, debits 6,000, credits 6,000. The purchase is an asset, not an expense; the expense arrives later as depreciation (Debit Depreciation Expense, Credit Accumulated Depreciation) on whatever schedule your tax preparer sets.
Debit Rent Expense 1,800 · Credit Cash 1,800. An expense increases (equity falls) and an asset decreases. If you paid it on the company credit card the credit goes to Credit Card Payable instead, and the later card payment is Debit Credit Card Payable, Credit Cash. Two entries, not one, and the expense appears only once.
Debit Owner’s Draw 3,000 · Credit Cash 3,000. Draws are a contra-equity account, so this reduces equity directly. It is not an expense and never reaches the profit and loss. Files that book draws as “owner salary” under-state profit and mis-state equity at the same time; for an S corporation, payroll to a shareholder-employee is a genuine expense, which is why the two are treated differently.
Each transaction is first a journal entry, dated and with its debit and credit lines. Posting copies each line to the account it names in the general ledger, so every account carries a running balance. At any date you can list every account with its balance in a trial balance; if the debit column and the credit column do not agree, something was posted with unequal sides, which modern software will not allow, or an account has been edited outside the entry, which it sometimes does. From the trial balance, the balance sheet accounts (assets, liabilities, equity) and the profit and loss accounts (revenue, expenses) are split into the two statements, and the net profit from the second is what makes the first balance.
That chain is why a conversion between accounting systems is scoped from the trial balance. Whether the source is Sage 50, Xero or an old QuickBooks Desktop file, the closing trial balance on the cutover date is the document the new file must reproduce to the cent; if it does, the double-entry history behind it is intact.
You will rarely type a debit or a credit in QuickBooks. Forms do it for you: an invoice debits Accounts Receivable and credits the income account on each line; a bill debits the expense and credits Accounts Payable; a bank deposit debits the bank and credits whatever the deposit lines point at. Three places let you see the entries behind the forms:
Transaction Journal. Open any transaction in QuickBooks Desktop and press Ctrl+Y (in QuickBooks Online, More → Transaction journal at the bottom of the form). It shows the exact debit and credit lines that transaction posted. When a form “does something odd”, this is where you look first.
The Journal report lists every entry in a date range with both sides, which is the fastest way to see what an imported bank feed actually posted.
The Trial Balance report, run as of the last day of each month, is the check. Its total debits and credits always agree in QuickBooks, so the useful signals are a balance with the wrong sign (a negative asset, a debit balance in a liability), a balance in Opening Balance Equity, or an Undeposited Funds balance that never clears. Each of those is an entry that was posted to the wrong side or the wrong account, and the cleanup work on most files is tracing them back to the form that created them.
A cashbook or spreadsheet that lists money in and money out is single-entry: each transaction touches one column. It can produce a rough profit figure, and for a very small cash business it is legal. What it cannot do is produce a balance sheet, show what customers owe or what you owe suppliers, distinguish a loan receipt from a sale, or prove that the cash figure it reports agrees with the bank. Every one of those is a question a lender, an investor or a tax examiner will ask, and every one is answered automatically by a double-entry ledger that has been reconciled. The bank reconciliation is the step that ties the ledger’s cash account to the statement, and it only exists because the cash account is one side of every cash entry.
Post from the source, not the bank feed. Bank feeds only know an amount and a date. The invoice, bill or receipt is what tells you which account the other side belongs in. Capturing that document at the time is the discipline described in the recording system.
Never adjust a balance directly. If cash on the books is $412 higher than the bank, the fix is finding the entry that is wrong, not typing a journal to cash. A forced journal balances the trial balance and hides the cause, and the cause usually recurs.
Close monthly. Reconcile every bank and card account, review the trial balance for wrong-sign balances, then lock the period. The month-end close checklist is the list; the point of double-entry is that it gives you something to check against.
No law requires it. The IRS requires records that clearly show income, expenses and the basis of assets, and accepts any consistent system. Every mainstream accounting package is double-entry, so if you use QuickBooks, Xero or Sage you are already using it whether or not you ever see a debit.
Both, depending on the account. A debit increases assets and expenses and decreases liabilities, equity and revenue. A credit does the opposite. The only universal rule is that the debits and credits in one entry must total the same amount.
Double-entry is the recording mechanism (two sides per transaction). Cash versus accrual is a timing choice about when income and expenses are recognised. You can keep double-entry books on either basis; QuickBooks reports can be switched between the two because the entries carry both the invoice date and the payment date.
In QuickBooks the total debits always equal total credits, so a balance sheet that is out is almost always a report-basis or date problem: a cash-basis balance sheet with a transaction dated outside the range, an accrual report with a payment applied to an invoice on a different date, or a damaged file. Run the report on both bases as of the same date; if it is still out, the file needs a data check before anything else.
If you would rather have the ledger kept than explained, the bookkeeping service posts, reconciles and closes every month; if the file already has wrong-sign balances, start with the free QuickBooks File Analyzer and then the cleanup page.
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Founder of Numerawise Solutions, established MMXXIV in Atlanta. Intuit ProAdvisor Gold tier. Former Intuit Technical Support engineer. Has personally led two hundred accounting software conversions for US small businesses since founding the practice. Reachable directly at [email protected].