Double-entry is kind of a bad name, but the concept is sound.
I like think of each entry as the complete journal entry - a set of debits (abbreviated DR) and credits (abbreviated CR) that describe an event. Debits and credits are, as many accounting instructors have taught many students, names that effectively mean "Left Side" and "Right Side". Some accounting systems represent debits as positive numbers and credits as negative numbers - this is perfectly valid too.
Say somebody purchases a product for $60 and a service for $40 from me. The product that I sold cost me $40 to purchase, and both the product and service have a 5% sales tax applied. This is a very common transaction - car repairs, for example, are usually a combination of products (e.g., oil, oil filter) and services (e.g., oil change and inspection).
Account DR CR
Cash in bank 105
Tax Payable 5
Sales Revenue 60
Services Revenue 40
Cost of Goods Sold 40
Inventory 40
In this example, I collected $105 in cash from my customer which will go into my bank account. Because of this sale, I now owe the relevant tax agency $5 because I collected sales tax on their behalf. I recognized sales revenue of $60 and services revenue of $40. Since I sold some physical goods that I had in inventory, I also reduced the value of my inventory by the cost of what I sold.
This is, in my mind, one "entry" which has six detail lines to recognize all of the different things that need to be recorded for this event. The important point is that everything balances, credits always equal debits.
Some businesses might not do the Cost of Goods Sold / Inventory entries with each transaction, instead they might count their inventory once a month and calculate out how much they sold (inventory at start + inventory purchased - inventory at end = cost of goods sold) and just do one entry a month to get the books in sync with reality.
I like think of each entry as the complete journal entry - a set of debits (abbreviated DR) and credits (abbreviated CR) that describe an event. Debits and credits are, as many accounting instructors have taught many students, names that effectively mean "Left Side" and "Right Side". Some accounting systems represent debits as positive numbers and credits as negative numbers - this is perfectly valid too.
Say somebody purchases a product for $60 and a service for $40 from me. The product that I sold cost me $40 to purchase, and both the product and service have a 5% sales tax applied. This is a very common transaction - car repairs, for example, are usually a combination of products (e.g., oil, oil filter) and services (e.g., oil change and inspection).
In this example, I collected $105 in cash from my customer which will go into my bank account. Because of this sale, I now owe the relevant tax agency $5 because I collected sales tax on their behalf. I recognized sales revenue of $60 and services revenue of $40. Since I sold some physical goods that I had in inventory, I also reduced the value of my inventory by the cost of what I sold.This is, in my mind, one "entry" which has six detail lines to recognize all of the different things that need to be recorded for this event. The important point is that everything balances, credits always equal debits.
Some businesses might not do the Cost of Goods Sold / Inventory entries with each transaction, instead they might count their inventory once a month and calculate out how much they sold (inventory at start + inventory purchased - inventory at end = cost of goods sold) and just do one entry a month to get the books in sync with reality.