Double Entry System
A double entry system of bookkeeping considers at least two aspects of all the financial transactions of a business unit. Under this system, at least two accounts are affected in opposite directions, i.e, one of them is debited and another one is credited with an equal amount. The three basic accounts- personal account, real account, and nominal account are all recognized under the double entry system, and hence, a profit ascertained is much more accurate and can reflect a real financial position of a business enterprise. Generally, professionals are hired to maintain accounts under this system, as a strict set of rules is to be followed. A trial balance can be prepared under this system of bookkeeping, which makes it possible to check the arithmetic accuracy of the accounting records as the debit side is always equal to the credit side under the double entry system. Under the double entry system, all the necessary accounts, like Journal, Ledger, Trial Balance, Financial Statement, and Balance Sheet are prepared to compute the profit and know about the financial position of any business unit.
Definition of Double Entry System
“The Double Entry System seeks to record every transaction in money or money’s worth in its double aspect- The receipt of a benefit by one account and the surrender of alike benefit by another account, the former entry being to the debit of the account receiving and the latter to the credit of that account surrendering.” -William Pickles
“Every business transaction has a two-fold effect and that it affects two accounts in opposite directions and if a complete record were to be made of each such transaction, it would be necessary to debit one account and credit another account. It is this recording of the two-fold effect of every transaction that has given rise to the term Double Entry System.” -J.R. Batliboi
Contact Us