Double Entry System of book keeping
Double entry system of bookkeeping is a method of recording business transactions based on a set of rules formulated for recording financial transactions. In this methodical system, every transaction has two impacts i.e. Debit and Credit. And the rule states that “for every debit, there is credit and for every credit, there is debit”. It is based on the formula “Assets = Liabilities + Equity (Capital)” or conversely on the formula “Equity= Assets – Liabilities” as explained in details as Accounting Equation
DEFINITION OF DOUBLE ENTRY SYSTEM:
In the words of Luca Friar Pacioli, “Double Entry System is a method of arranging accounts in such a way that the dual aspect would be expressed by a debit amount and an equal and offsetting credit amount.”
ADVANTAGES OF DOUBLE ENTRY SYSTEM OF BOOK KEEPING
- The most advantageous feature is that you can draw a Trial Balance of your ledger accounts as and when required and know your position of business up-to-date.
- This system gives you the most accurate and reliable position of your accounts.
- It facilitates you to compare the business performance of a period with figures of a previous period or with last year corresponding period figures.
DISADVANTAGES OF DOUBLE ENTRY SYSTEM OF BOOK KEEPING
- The accounts can depict the wrong picture when an accountant is not well versed in accounting and debits wrong head of account or entirely reverses a transaction while posting in the ledger accounts.
- This system requires a number of books to be maintained as compared to the single entry system of bookkeeping.
But, on the whole, this double entry system of book-keeping is the most popular and the most commonly used system of accounts all over the world.
Subscribe to:
Posts
(
Atom
)
No comments :
Post a Comment