Double entry book-keeping is a method of recording business transactions in which every transaction has two sides — a debit side and a credit side.

In other words, for every value received, there must be a value given. Therefore, each transaction affects two accounts — one is debited and the other is credited.

It is called the book-keeping system of double entry because every transaction is entered twice, once on the debit side and once on the credit side.

Example:
If a trader buys goods for ₦10,000 cash, the goods are coming in (so the Purchases Account is debited) and cash is going out (so the Cash Account is credited).

The double entry system helps you to:

1. Record all business transactions accurately and completely.


2. Show the dual nature of every transaction (what is received and what is given).


3. Make it easier to prepare a trial balance and final accounts such as the profit and loss account and balance sheet.


4. Detect errors and prevent fraud.


5. Know the true financial position of the business at any time.

Every transaction follows one of the following rules:

1. Debit the receiver, Credit the giver.
   (Used for personal accounts such as debtors and creditors.)


2. Debit what comes in, Credit what goes out.
   (Used for real accounts such as cash, furniture, building.)


3. Debit all expenses and losses, Credit all incomes and gains.
   (Used for nominal accounts such as rent, salary, commission.)

Assets are the valuable items owned by the business. Examples are cash, buildings, furniture, equipment, and land.

Rules for Assets:

1. When an asset comes into the business, Debit the asset account.


2. When an asset goes out or decreases, Credit the asset account.

Example:
If a business buys equipment for ₦150,000 cash,
→ Debit: Equipment Account ₦150,000
→ Credit: Cash Account ₦150,000

Explanation: Equipment has come in (debit), and cash has gone out (credit).

Double Entry Treatment of Liabilities

Liabilities are the debts and obligations that a business owes to outsiders. Examples are bank loans, creditors, and salaries payable.

Rules for Liabilities:

1. When a liability increases, Credit the liability account.


2. When a liability decreases (that is, payment is made), Debit the liability account.

Example:
If a business borrows ₦100,000 from a bank,
→ Debit: Cash Account ₦100,000
→ Credit: Bank Loan Account ₦100,000

Explanation: Cash is coming into the business (debit), while a liability has been created (credit).

If later the business repays ₦50,000 of that loan,
→ Debit: Bank Loan Account ₦50,000
→ Credit: Cash Account ₦50,000

Explanation: The liability has reduced (debit), and cash has gone out (credit).

Double Entry Treatment of Expenses

Expenses are the costs that a business incurs in its operations. Examples are rent, salary, wages, electricity, and transport.

Rules for Expenses:

1. When an expense is incurred, Debit the expense account.


2. When an expense is reduced or refunded, Credit the expense account.

Example:
If a business pays ₦20,000 for rent,
→ Debit: Rent Expense Account ₦20,000
→ Credit: Cash Account ₦20,000

Explanation: Rent is an expense (debit), and cash is going out (credit).

Double Entry Treatment of Income

Income is the money that the business earns from its operations. Examples are sales, commission received, and rent received.

Rules for Income:

1. When income increases, Credit the income account.


2. When income decreases or is refunded, Debit the income account.

Example:
If a business receives ₦10,000 as commission,
→ Debit: Cash Account ₦10,000
→ Credit: Commission Income Account ₦10,000

Explanation: Cash is coming in (debit), and income is increasing (credit).

Examples of Journal Entries

Example 1: Purchase of Goods for Cash
Transaction: Bought goods worth ₦80,000 for cash.
Journal Entry:
→ Debit: Purchases Account ₦80,000
→ Credit: Cash Account ₦80,000

Example 2: Received Money from a Debtor
Transaction: Received ₦40,000 from Mr. Bola, a debtor.
Journal Entry:
→ Debit: Cash Account ₦40,000
→ Credit: Mr. Bola’s Account ₦40,000

Example 3: Payment of Wages
Transaction: Paid wages ₦25,000 in cash.
Journal Entry:
→ Debit: Wages Expense Account ₦25,000
→ Credit: Cash Account ₦25,000

Example 4: Received Loan from Bank
Transaction: Received ₦150,000 loan from First Bank.
Journal Entry:
→ Debit: Cash Account ₦150,000
→ Credit: Bank Loan Account ₦150,000

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Double Entry Book-keeping — Example in Journal Entry and Ledger Form

Illustration (Transaction 1)

On 10th March 2025, a trader bought goods worth ₦120,000 on credit from Mr. Tunde.

Journal Entry (Transaction 1)

Illustration (Transaction 2)

On 15th March 2025, the trader paid ₦50,000 cash to Mr. Tunde as part payment for the goods bought earlier.

Journal Entry (Transaction 2)

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Postings to Ledger Accounts

Below are the ledger accounts as they appear after posting the two journal entries. Columns show the usual ledger layout with debit on the left and credit on the right.

Purchases Account (Asset/Expense type)

Mr. Tunde Account (Personal Ledger — Creditor)

Cash Account (Asset)

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Explanation and Balances

1. Purchases Account shows the goods acquired on credit for ₦120,000. The purchases account is debited because goods have come into the business.


2. Mr. Tunde Account shows the creditor balance. The right side (credit) records the original ₦120,000 owed. The left side (debit) records the ₦50,000 part payment. The remaining balance of ₦70,000 is carried down and brought down as the opening balance for the next period.


3. Cash Account shows that cash decreased by ₦50,000 when the part payment was made, so cash is credited for that amount.


4. All postings follow the double entry principle: every debit has a corresponding credit and the ledger balances allow you to see how much is still payable and how much cash was used.

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1. It helps to keep complete and accurate financial records.


2. It helps to detect and correct errors easily.


3. It prevents fraud because every entry must balance.


4. It provides reliable information for preparing the trial balance and financial statements.


5. It helps the business owner to know the financial position of the business.


6. It provides a permanent record for future reference.

Conclusion

Double entry book-keeping is the foundation of modern accounting.
It ensures that every business transaction is recorded accurately by using the principle that every debit must have a corresponding credit.
By following this system, a business can maintain correct records, prepare reliable accounts, and ensure financial accountability.