Role of double entry system?


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Dhruv Gaglani Profile
Dhruv Gaglani , CA (equivalent to UK ACCA), Partner, Virtual CFO, Business Advisor & Tax Consultant, answered

Double entry system is a scientific method of recording transactions. Previously, businessmen used to follow what is called as "Single Entry" system of accounting. In this method, they used to keep records of how much sales and purchases were made during a particular period, the details of debtors, creditors, cash and bank balance, stock etc. Existing as on a particular date.

This information was sufficient for a small scale business to run its operations, however this did not provide detailed information like amount cash sales, credit sales, turnover ratios etc. You cannot derive any analytical data / information from such records.

Hence, a double entry system was developed whereby transactions were recorded in two accounts and thus proper information is recorded and analysis can be made from such information as may be required in future.

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