3.4. Double-Entry Accounting for Single-Entry Folks
Businesses and nonprofit entities use double-entry accounting. But I've never met an individual who uses double-entry accounting in personal bookkeeping. Instead, individuals use single-entry accounting. For example, when you write a check to make a payment on your credit card balance, you undoubtedly make an entry in your checkbook to decrease your bank balance. And that's it. You make just one entry — to decrease your checking account balance. It wouldn't occur to you to make a second, companion entry to decrease your credit card liability balance. Why? Because you don't keep a liability account for what you owe on your credit card. You depend on the credit card company to make an entry to decrease your balance.
Businesses and nonprofit entities have to keep track of their liabilities as well as their assets. And they have to keep track of all sources of their assets. (Some part of their total assets comes from money invested by their owners, for example.) When a business writes a check to pay one of its liabilities, it makes a two-sided (or double) entry — one to decrease its cash balance and the second to decrease the liability. This is double-entry accounting in action. Double-entry does not mean a transaction is recorded twice; it means both sides of the transaction are recorded at the same time.