Double Entry System of Book-keeping – Features & Advantages.
Double Entry System of Book-keeping.
Double Entry System of Book-keeping refers to a system of accounting under which both the aspects of every transactions are recorded in the accounts involved. In other words, it is a system of recording business transactions which recognizes that each transaction has a dual aspect.
Under this system, each transaction is seen as a flow of value from one account to another. The receiving account is debited with the amount and the giving account is credited. Therefore, every debit has equal amount of credit. So the total of all debits must be equal to the total of all credits.
Example. Mr. X sold goods for cash Rs. 10,000 to Mrs. Y. In this case the dual aspects of this transaction for Mr. X and Mr, Y are as follows :
Dual Aspects for Mr. X
- Receipt of cash Rs. 10,000
- Forgoing of goods of Rs 10,000
Dual Aspects for Mr. Y
- Receipt of goods Rs 10,000
- Payment of cash Rs 10,000
Features of Double Entry System :
- This system records both aspect of each transaction.
- All transaction are recorded fully.
- Under this system, equal debit and credit entries are made for every transactions in two different accounts.
- Under this system, it is possible to prepare a Trial Balance and check the arithmetical accuracy of the books of the account.
- Under this system, profit / loss can be found.
- Balance Sheet can be prepared.
Advantages of the Double Entry System
- A complete record of all the transactions relating to a business unit are maintained systematically.
- The financial position of the firm can be ascertained.
- The arithmetical accuracy of the books of account can be ensured.
- Location and rectification of error are possible.
- The profits earned or losses suffered for an accounting’ period can be ascertained
- Amount due to suppliers and due from customers can be easily ascertained.