Double-entry bookkeeping is a system where every transaction is recorded in at least two accounts - a debit and a credit - ensuring the accounting equation always balances.
Double-entry bookkeeping is the foundation of modern accounting. Developed in the 15th century, it requires that every financial transaction is recorded in at least two accounts: one account is debited and another is credited, and the total debits must always equal the total credits. This creates a self-balancing system that catches errors and provides a complete picture of every transaction's impact. For example, when you make a sale on credit, you debit accounts receivable (increasing the asset) and credit revenue (increasing income). When the customer pays, you debit cash (increasing the asset) and credit accounts receivable (decreasing the asset). Understanding debits and credits can be confusing at first: assets and expenses increase with debits, while liabilities, equity and revenue increase with credits. Modern accounting software like Xero handles the double-entry mechanics automatically - when you record a transaction, the software creates both sides of the entry. SortBooks helps by suggesting the right account for each miscoded transaction, so both sides of the entry are correct once you approve it.
SortBooks helps with the bookkeeping behind double-entry bookkeeping by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing double-entry bookkeeping by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
The general ledger is the master record of all financial transactions in a business, organised by account. It forms the basis for preparing financial statements.
A journal entry is a record of a financial transaction in the accounting system. It includes the date, accounts affected, amounts and a description of the transaction.
The chart of accounts is a structured list of all accounts used in your accounting system to categorise transactions. It defines the categories for your income, expenses, assets, liabilities and equity.
In double-entry bookkeeping, a debit is an entry on the left side of an account. Debits increase assets and expenses but decrease liabilities, equity and revenue.
In double-entry bookkeeping, a credit is an entry on the right side of an account. Credits increase liabilities, equity and revenue but decrease assets and expenses.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.