Every business transaction causes at least two changes in the financial position of a business concern at the same time. Hence, both the changes must be recorded in the books of account. Otherwise, the books of accounts will remain incomplete and the result ascertained therefore will be inaccurate.
For example, we buy machinery for US$ 30,000. Obviously, it is a business transaction. It has brought two changes, machinery increases by US$ 30,000 and cash decreases by an equal amount. While recording this transaction in the books of accounts, both the changes must be recorded. In accounting language these two changes are termed "as a debit change" & "a credit change".
Thus we see that for every transaction there will be two entries, one debit entry and another credit entry. For each debit there will be a corresponding credit entry of an equal amount. Conversely, for every credit entry there will be a corresponding debit entry of an equal amount. So, the system under which both the changes in a transaction are recorded together, one change is debited, while the other change is credited with an equal amount, is known as double entry system.
The successive processes of the double entry system may be noted:
3) Trial Balance
4) Final Accounts
Hi,You seem to be doing work in accounting. Well double entry system is used in accounting.The double entry book keeping is basically a system of recording where one transaction having two different aspects are recorded,One who gets the benefit and the other one who gives the benefit.
Like for example when you pay some money for purchase of furniture. Now the event or transaction was one and that was purchase of furniture but this has two aspects.One aspect is the person who received money and another one who gave it.Now in terms of accounting a person who gets or receives the benefit is called as debitor and the person who gives or provides the facility is called creditor.
Basically its two aspects of one transaction.Every creditor has debitor and every debitor has a creditor cause otherwise we wont be able to locate where the money or the transaction went.The total credit entries are or should always be equal to total debit entries if such does not happen that would mean that there is some entry not complete.
Basically both debit and credit of one transaction simply represents the double entry system.
Hope its pretty clear to you now.
Take care for now.
Double entry system is acknowledged as the best method of accounting in the modern world. The following advantages are derived from it.
a) Under this system both the aspects of each and every transaction are recorded. So, it is possible to keep complete account.
b) Since both the aspects of a transaction are recorded, for each debit there must be a corresponding credit of an equal amount. Therefore, total debits must be equal to total credits. In fact, it is possible to verify the arithmetical accuracy of the books of account by ascertaining whether the two sides become equal or not through a process knows as Trial Balance.
c) Under this system "Profit & Loss Account" can be prepared easily by taking together all the accounts relating to incomes or revenues and expenses or losses and thereby the result of the business can be ascertained.
d) A balance sheet can be prepared by taking together all the accounts relating to assets and liabilities and thereby the financial position of the business can be assessed.
e) Under this system mistakes and defalcations can be detected, this exerts a moral pressure on the accountant and his staff.
f) Under this system necessary statistics are easily available so that the management can take appropriate decision and run the business efficiently.
g) All the necessary detail about a transaction can be obtained quickly and easily.
h) The total amount owed by debtors and the total amount owed to creditors can be ascertained easily.
Record transactions in two sides, that are credit on left side and debit on right side. It counts on one who receaves and one who gives. Example a bussines buying furnitures pay in cheque, basicaly two accounts are affected. The asset account is debited since asset have debit balance and bank account is credited., Hope atleast you get the concept. Further readings are needed.
Double entry system is that system which is changes in both of side that is credit side (left side) is credited n debit side(right side) is debited
Simple double entry is between tow or more heads it being divided the entry two equal parts and post the entry amount in required heads
All account are made in 'T' form ,divided into two sides:debit and credit.
Debit is the left side of account .
Credit is the right side of account .
Debit A/C:This is an entry recorded in the left side of account.
Credit A/C:This is an entry recorded in the right side of account .
12)Payment of creditor
13)Receiving money from debtor
Double entry system when & where issue
Firstly a profit and loss accounts can be prepared from which we can ascertain net profit and net loss.
Secondly trading account can also be made in which we can ascertain gross profit and gross loss
thirdly balance sheet can be prepared in which we can ascertain financial position of a business
fourth,we can know about our creditors as wel as debtors and many other accounts like purchases,sales etc
fifth we can detect errors very easily as every corresponding credit has a corresponding debit
sixth and last their is a arithmetical accuracy and al sought of taxes can be easily determinelike sles tax,income tax etc
New car purchased from b comp
In the world of bookkeeping, there are two different systems commonly used by businesses, big and small, to record financial transactions. They are single-entry and double-entry bookkeeping. Both systems "get the job done," but it depends on what your personal preference dictates. However, unless you're a small business with simple transactions then double-entry bookkeeping will be the most beneficial to you and your company's financials.
Single-entry bookkeeping is similar to a checkbook register where only a single line transaction is recorded, reflecting the credit or debit of cash. This simple way of keeping track of your money is less expensive and can be maintained in less time and with less effort. Single-entry bookkeeping only takes into account records of cash, accounts receivable, accounts payable and paid taxes. More in depth records such as assets, liabilities, inventory, expenses and revenues are not maintained, thus leading to an inadequate portrayal of your financial records. This is where double-entry bookkeeping comes into play.
Double-entry bookkeeping, which has been around since the 1400's and is the basis of general accepted accounting principals, is a little more involved. Instead of only one transaction in one column, double-entry makes two entries for every one transaction. A credit entry is made for revenue brought into the company and a debit entry for every transaction paid. In the end, these two entries will offset each other so that both sides will add up to zero. With this in mind, double-entry accounting provides the following advantages over single-entry bookkeeping:
1. A check against a bookkeeping error including theft are automatically provided when transactions are recorded and the total amount of debit entries equals the total amount of credit entries.
2. The preparation of financial statements can be created with ease due to the accurate and continuous calculation of profit (credit) and loss (debit).
3. With both entries recorded (sales and purchases) you can track who owes the company money and who the company owes money to more easily.
4. The company's financial position is clearly illustrated and can be accessed quickly for effective business planning.
5. With a higher degree of required entries, double-entry bookkeeping has a strict approach creating detailed records of all assets so that your company doesn't lose track of any income.
6. Double-entry bookkeeping takes internal transactions such as entry adjustment into account which provides more accurate information at the end of the fiscal year.
7. Omission of important data is never a problem because each transaction is recorded twice in two separate columns.
While the benefits have been reduced greatly due to introduction of computerized systems, double-entry bookkeeping will still be more practical when it comes to detecting fraud and errors. Whether you are a single or a double-entry bookkeeper, as long as you're maintaining your financial records correctly, then continue crunching those numbers and getting the results you desire.
VBP Outsourcing is a full-service marketing and accounting firm located in Glen Burnie, Maryland. We specialize in providing intergrated creative and financial business solutions with a customized, partnership approach.
Hi,Well double entry system is one of the most valid and secure accounting system and its has lots of advantages and very little disadvantages.Well the advantages of double entry system can be the following.
First of all if you have double entry system and your accounts are up to date then you can easily make trial balance and know what your position is in terms of assets, liabilities and equity.Secondly the most important advantage is it prevents fraud which can be easily done in single entry system. In double entry system alterations are easily caught.
Thirdly a business man specifically a trader can easily check his sales and purchases etc for previous time period of business as well as present ones and know if he is making profit or not.Fourthly other statements such as profit and loss as well as trading can be made, where gross profit and net profit of business can be easily calculated.
Fifthly is that different accounts are made in double entry system which helps in making of balance sheet plus understanding the different heads of different items.Sixthly and lastly but not the least is that in double entry system the entry is recorded in very systematic and scientific way and this way accountants can have very reliable data.
These are basic advantages of double entry system and further more advantages can be easily drawn depending on nature of business.Over all double entry system has been very effective so far.
That's all for now.