What is the principal of Double Entry system of accounting?

What is the principal of Double Entry system of accounting? What are the advantages of Double Entry system of accounting?



The principal of Double Entry system of Accounting is “Every debit has a corresponding credit” hence the total of all debits has to be equal to the total of all credits. In simple words, every business transaction affects two accounts. If one account is debited then the other account will be credited with the similar amount. For example: if the business purchases a machinery worth Rs. 500000, then machinery account gets debited with amount Rs. 500000 as the business is receiving an asset for its operation, on the other side cash account automatically gets credited with the same amount of Rs. 500000 as cash is going out of the business.

Advantages of Double Entry system of Accounting:

-It considers both the aspects of business transaction
-Arithmetic accuracy of the accounting records can be checked and verified by preparing trial balance
-Correct results of the operations can be ascertained by preparing Final Accounts
-Correct valuation of assets and liabilities at any point of time by preparing Balance sheet

What are the rules of double entry book keeping for various types of accounts?

Following are the basic rules of double entry book keeping for various types of accounts:

-Personal Account : Debit the Receiver, Credit the Giver
-Real Account : Debit what comes in, Credit what goes out
-Nominal Account : Debit all the Expenses, Credit all the Incomes
What is Trial Balance? What does an accurate Trial Balance suggest?
Trial Balance is a summary of all the balances of various ledger accounts and Cash/Book accounts of an organisation....
What is Journalizing? What are the columns of a journal?
Journalizing is the process of recoding business transactions in the Journal in chronological order…
What are subsidiary books? Why are they maintained?
Subsidiary book is the sub division of Journal. These are known as books of prime entry or books of original entry….
Post your comment