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.
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Dual entry system is that system which recognises and recordsMarks:1
two aspects of a transaction.
Explanation:There are only two aspects of a transaction. The double entry system is that system which recognises and records both the aspects of a transaction. One credit and the other debit.
Double entry system was invented byMarks:1
Explanation:Double entry system of accounting was propounded by Lucas Pacioly in Italy in 1494.
What do you understand by Double Entry System ? State its advantages.Marks:6
“The double entry system is that system which recognizes and records both the aspects of transactions”. This system has been proved to be systematic and has been found of great use of recording the financial affairs of our institutions requiring use of money.
Advantages of Double Entry System: -
1) Scientific System – As a matter of fact, this system is the only scientific system of recording business transactions as compared to other systems of book-keeping, it helps attain the objectives of accounting.
2) Complete records of transactions - This system maintains a complete record of all business transactions.
3) A check on the accuracy of accounts - By the use of this system the accuracy of the accounting work can be established through the device of the Trial Balance.
4) Ascertainment of profit or loss - The profit earned or loss suffered during a period can be ascertained together with details by preparation of profit and loss account.
5) Comparative study is possible – Results of one year may be compared with those of previous years and reasons for the change may be ascertained.
6) Helps management in decision-making – The management may be able to obtain good information for its work, specially in making decisions.
Classify the following into real, nominal or personal accounts:
Cash, Discount, Ram, Salary, Outstanding Salary and Capital.
Item Type of Account Cash Real Account Discount Nominal Account Ram Personal Account Salary Nominal Account Outstanding Salary Personal Account (Representative) Capital Personal Account
Give reasons of the popularity of double entry system?Marks:4
“The double entry system is that system which recognizes and records both the aspects of transactions”. This system has been proved to be systematic and has been found of great use of recording the financial affairs of our institutions requiring use of money. According to this system every transaction has two aspects- Debit and Credit and every transaction is recorded once on debit side and again on credit side.
Reasons of popularity:
- It is a scientific system of accounting.
- It records both aspects of a transaction.
- It is helpful to depict more reliable financial position.
- It is analytical in nature.