Tuesday, October 2, 2007

Double Entry Bookkeeping

Definitions for Entrepreneurs

The Basis for Modern Bookkeeping, Double Entry Bookkeeping is an Essential Knowledge Base for both Entry-Level and Experienced Entrepreneurs In a nutshell, double entry bookkeeping is the record keeping mechanism that requires two actions for every transaction, thus balancing two separate sides of a financial equation. For instance, when a computer is purchased, there is both an increase in the amount of assets a company holds, and a decrease in the amount of money it has in the bank.

Financial record keeping such as the double entry system originated in Europe during seafaring times, where ships would leave port with a certain amount of money, and then return with less money but more goods in exchange. It was the captains' responsibility to ensure that the value of the goods, along with the amount of money that returned, was equal to the amount of money he started out with at the beginning of the voyage.

Of course, these transactions were quite confusing at times, since captains sometimes left with goods to exchange or returned with items that were not sold. In these instances, the calculations to determine how much money the captain should have became quite taxing. This is where Friar Luca Pacioli came in.

In 1494, Pacioli determined that there needed to be an account of all of the ship's trading practices, so he wrote a book-length piece on the subject. His book [title] became a best seller of the time and was used as the end-all resource for double entry bookkeeping for more than two hundred years.

Half a century later, the principles of double entry bookkeeping still stand, although the details have been refined dramatically over the years. Modern-day entrepreneurs use the double entry system to track and report their business transactions for banks, shareholders, government agencies and other commercial enterprises.

Source: http://entrepreneurs.suite101.com/

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