Double Entry System
- Double Entry System is a complete and scientific system of accounting in which both the aspects of a transaction are recorded. Every business transaction has a two-fold effect.
- It is this recording of the two-fold effect of every transaction that has given rise to the term Double Entry System.
- Stages of double entry system include recording, classification and summarising. Recording in Journal or subsidiary books is the first stage of double entry system.
- Second stage states that transactions are transferred in a classified form to another book which is called Ledger.
- In final stage, all the accounts in the ledger are balanced and put in a list, debit balances on one side and credit balances on the other side.
- Features of double entry system are every transaction affects atleast two accounts, aspects may be personal or impersonal, rule based and preparation of trial balance.
- The advantages of double entry system are scientific system, complete record of every transaction, preparation of trial balance, preparation of Trading and Profit and Loss account and Balance Sheet, less possibility of frauds, legal approval, helps management in decision making, suitable for all types of business etc.
- Disadvantages of double entry system are expert knowledge required, lengthy process, costly and undisclosed errors.