Double entry system
system of book keeping is a scientific and complete system of recording the
financial transactions of an organisation. According to this system, every
transaction has a two fold effect. That is, there are two aspects involved,
namely, receiving aspect and giving aspect. It is denoted by debit (Dr.) and
credit (Cr.). The basic principle of double entry system is that for every
debit there must be an equivalent and corresponding credit. Debit denotes an
increase in assets or expenses or a decrease in liabilities, income or capital.
Credit denotes an increase in liabilities, income or capital or a decrease in
assets or expenses.
“Every transaction involving money or money’s worth has two fold aspects, the receiving of a value on the one hand and the giving of the same value on the other. This two fold nature in all transactions must be recorded in the books and this gives rise to the term Double Entry Book keeping”.- Munro and Palmer
“Every business transaction has a two-fold effect and that it affects two accounts in opposite directions and if a complete record is to be made of each such transaction it is necessary to debit one account and credit another account. It is this recording of two fold effect of every transaction that has given rise to the term Double Entry”.- J.R Batliboi
Following are the principles of double entry
business transaction, there are two aspects.
aspects involved are the benefit or value receiving aspect and benefit or value
aspects involve minimum two accounts; at least one debit and at least one
debit, there is a corresponding and equivalent credit. If one account is
debited the other account must be credited.
Following are the advantages of double entry
system, the two aspects of each transaction are recorded in the books of
accounts. This helps in checking the accuracy in accounting.
regarding expenses, losses, incomes, gains, assets, liabilities, debtors,
creditors, etc., are readily available. This helps to ascertain the net profit
earned or loss incurred during an accounting period and also to know the
financial position as on a particular date.
results of the current year can be compared with those of the previous years
and also with other business firms. It facilitates business planning for
records maintained under this system are accepted by financial institutions,
government and others, because it is a systematic and scientific system.