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Double-Entry Book-Keeping System

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The double entry book-keeping system is regarded as the most scientific and complete system of book keeping. It is universally used in modern entities. It recognizes two aspects of transactions and records them giving their names of debit and credit in two separate accounts with equal effect.
Double entry system emphasizes that every financial transaction has two aspects where each transaction is recorded in two separate accounts i.e. debit and credit with the equal amount. The profit and loss account, and balance sheet are prepared to know the profitability and financial position of the business. Thus, double entry system is more systematic, scientific and complete system of book keeping.

The following are the definitions of double entry system of book-keeping:
"The specific technique which reflects the concept of duality is known as double entry book- keeping." -Lewis and Gillespie
"Double entry system is the system under which each transaction is regarded to have two-fold aspects and both the aspects are recorded to obtain the complete record of dealings."- Juneja, Chawla, and Saksena

From the above definition, it is obvious that double entry system is regarded as the most systematic and scientific system under which every financial transaction is recorded into two separate accounts with the equal amount to determine the true profit or loss and financial position of the business.

Features

The following are the main features of double entry system of book-keeping:

  • Double effect
    The double entry system maintains records showing the double effect of each financial transaction. It makes the record of each financial transaction into two different accounts on two opposite sides.
  • Equal effect
    Every financial transaction affects in two different accounts with the equal amount. The debit side, as well as credit side of two different accounts, is affected by an equal amount.
  • Debit and Credit
    The double entry system provides two aspects of each transaction with the names 'Debit' and 'Credit'. The one aspect of the transaction is debited and another is credited in the books of accounts.
  • Two aspects
    It recognizes that every transaction has two aspects. It is based on the fact that a transaction is an exchange and every exchange involves either two things, or two persons, or a thing and a person.

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Importance and Advantages

The following are the main advantages of double-entry book-keeping:

  • Scientific
    The double entry system is a scientific system of book keeping. It has its own principles and rules. The two aspects of every financial transaction are recorded under certain rules and principles.
  • Systematic
    A systematic technique is followed in recording financial transactions in book-keeping. It records financial transactions in systematic and chronological order with a suitable narration of the financial transactions.
  • Complete
    It is a complete system of book-keeping. It records not only each and every financial transaction but also each aspect of the transaction.
  • Accuracy
    This system is based on the double-entry principle which means 'for every debit amount there is corresponding credit amount or vice-versa'. Such a method of debit and credit can help to ensure the arithmetical accuracy of the recordings of financial transactions.
  • Profit or loss
    This system helps to ascertain the true profit or loss of a business by preparing the profit and loss account for a given period of time.
  • Financial position
    This system also helps to reveal information about the financial position of the business by preparing a statement called balance sheet.
  • Control
    This system also helps to reveal information about the financial transactions. Therefore, the recording of financial transactions in books provides necessary information for the purpose of control costs.
  • Comparison
    This system facilitates the comparison of financial results of different years. The reasons for the change in the operational results and the business's financial position in a year can be ascertained easily.
  • Decision making
    This system communicates financial information that is necessary for taking decisions by a business. It also provides necessary information to different users such as owners, managers, and creditors for the purposes of making decisions.
  • Frauds and errors
    This system helps to ensure the arithmetical accuracy of the recordings of the financial transactions in the books. It also provides full details of information of all kinds of assets and liabilities of a business. Therefore, there is a smaller chance of frauds and errors occuring in the books of accounts.

Accounting Process or Cycle

Accounting consists of a number of sequential steps of activities. The accounting process has the following fives steps:

  • Identifying the financial transactions
    A business may perform several transactions. Of which, financial transactions are recorded in accounts. In the first step of the accounting process, therefore, financial transactions are identified.
  • Recording of financial transactions
    All the financial transactions of the business are systematically recorded in the journal and subsidiary books in the second step of the accounting process.
  • Classifying the financial transactions
    The financial transactions are classified mainly into the transactions related to persons that include enterprises, persons, assets, and income-expenses.
  • Summarizing financial transactions
    All financial transactions are summarized by preparing a trial balance. The preparation of trial balance helps to prepare final accounts. The final accounts disclose the profit or loss and financial position of a particular of a business enterprise.
  • Communicating the results of the business operations and financial position
    Finally, the results of the business operations such as profits or losses and the company's financial positions are communicated to the users.



  • Double Entry System is referred to such accounting system under which every financial transaction is recorded into two separate accounts with an equal amount to determine the true profit or loss and financial position of the business.
  • The profit, loss account and balance sheet are prepared to know the profitability and financial position of the business. 
  • Double entry system is more systematic, scientific and complete system of book-keeping.
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Very Short Questions

The following are the main features or characteristics of double-entry book-keeping:

  1. Two aspect
    The double-entry book-keeping recognizes that every transaction has two aspects. It is based on the fact that a transaction is an exchange involves either two things, or two person, or a thing and a person.
  2. Debit and credit
    Since the double entry system provides the two aspects of the transaction with the names 'debit' and 'credit' respectively. Thus, foer each transaction, one aspect is debited and another aspect is credited.
  3. Two-fold
    The double entry system records two-fold or makes double effect of every transaction. This implies that the two aspects of transaction are simultaneously recorded on two opposite sides of two seperate accounts.
  4. Equal effect
    The double-entry system shows an equal effect of each of the two aspects of s transactions. This implies that the amount of one aspect of a transaction is always equal to the amount of the other aspects.

The following are the main advantages of double-entry book-keeping:

  1. Scientific
    The double-entry system is a scientific system of book-keeping. It has its own set of principles and rules. Under those principles and rules, two aspects of every financial transaction are recorded.
  2. Systematic
    A systematic technique is followed in recording financial trnsaction in book-keeping. It records financial transaction in systematic and chronological order with suitable narration of the financial transaction.
  3. Complete
    It is a complete system of book-keeping. It records not only each and every financial transaction, but also each aspect of the transaction.
  4. Accuracy
    This system is based on the double-entry principle which means 'for every debit amount there is a corresponding credit amount or vice versa. Such a method of debit and credit can help ensure arithmetical accuracy of recordings the financial transactions.

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  • It is an expensive system because a number of books are required to maintain ______.

    Single entry system


    Double entry system


    Bhuktani Sresta Pranali


    Budgeting system


  • It is the system under which each transaction is regarded to have two fold aspects and both the aspects are recorded to obtain complete record of dealings.

    Single entry system


    Double entry system


    Budgeting system


    Bhuktani Sresta Pranali


  • Double entry system is more ______ than single entry system.

    scientific


    systematic


    complete system of book keeping


    All


  • "The specific technique which reflects the concept of duality is known as double entry book- keeping." Who gave this definition?

    R. N. Carter


    Juneja, Chawla and Saksena


    Kohler


    Lewis and Gillespie


  • "Double entry system is the system under which each transaction is regarded to have two fold aspects and both the aspects are recorded to obtain complete record of dealings." Who defined it?

    R.N. Carter


    Kohler


    Juneja, Chawla and Saksena


    A.N. Agrawala


  • Which one of them is the feature of double entry book-keeping system?

    Complete record


    Scientific 


    All the options are correct


    Double effect


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