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What does double entry mean?

Double entry means that every transaction will involve at least two accounts. For example, if your company borrows money from the bank, the company's asset Cash is increased and the company's liability Notes Payable is increased. If your company pays the six-month insurance premium, your company's asset Cash is decreased and its asset Prepaid Insurance is increased. If an employee works for hourly wages, the company's account Wages Expense is increased and its liability account Wages Payable is increased. When the employee is paid, the account Wages Payable is decreased and Cash is decreased.

Double entry also requires that one account be debited and the other account be credited. Accounting software might record the effect on one account automatically and only require information on the other account. For example, if you are preparing a check, the software will automatically reduce the Cash account. Therefore, the accounting software needs only to prompt you for information on the other account involved in the payment being processed.