what is double entry system ?explain its principles and advantages Related: Meaning & Scope of Accounting, Fundamentals of Accounting?

Question

what is double entry  system ?explain its principles and advantages Related:  Meaning & Scope of Accounting, Fundamentals of Accounting?

Answer

Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. The double-entry has two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-hand side is credit.

Advantages of Double Entry System

It ensures the arithmetical accuracy of the books of accounts. For every debit, there is a corresponding and equal credit. It prevents and minimizes frauds. Moreover, frauds can be detected early. Errors can be checked and rectified easily.

Answer

Answer

Double entry system of accounting system

Answer

The double-entry system is a method of bookkeeping that records every financial transaction in at least two accounts – one account will be debited, and another account will be credited. This system follows the principle that every transaction has a dual effect on the company's financial position.

There are three main principles of the double-entry system:

1. Dual Aspect: This principle states that every transaction has two effects – a debit and a credit. The total debits must always equal the total credits in the system.

2. Accounting Equation: The double-entry system is based on the accounting equation, which states that Assets = Liabilities + Equity. This equation must always be in balance.

3. Historical Cost: The double-entry system records transactions based on their historical cost rather than their market value.

Advantages of the double-entry system include:

1. Accuracy: By recording every transaction in at least two accounts, the system provides a built-in error-checking mechanism. If the debits and credits do not balance, it indicates an error that needs to be corrected.

2. Completeness: The system ensures that all financial transactions are recorded, leaving no room for omission or oversight.

3. Financial Analysis: The double-entry system allows for the preparation of accurate financial statements, which are essential for analyzing the financial health and performance of a company.

4. Audit Trail: Since every transaction is recorded in at least two accounts, it creates a clear audit trail, making it easier to trace and verify financial information.

Overall, the double-entry system provides a robust and reliable method of recording and tracking financial transactions. It helps maintain accuracy, completeness, and transparency in financial reporting, making it an essential tool for businesses.

Similar CA Foundation Doubts

defined financal accounting Related: Meaning & Scope of Accounting, Fundamentals of Accounting?

Objective of accounting Related: Accounting Principles, Fundamentals of Accounting

plz explain me about matching concept . i did not get this concept Related: Unit 2: Accounting Concepts, Principles And Conventions?

Needed a Video for fundamentals of account s? Related: Principles and Practice of Accounting?

what is the depreciation Related: Depriciation Accounting, Fundamentals of Accounting?

Top Courses for CA FoundationView all

Quantitative Aptitude for CA Foundation

Principles and Practice of Accounting

Business Laws for CA Foundation

Business Economics for CA Foundation

Mock Tests & Past Year Papers for CA Foundation

Top Courses for CA Foundation

Top Courses for CA Foundation

Suggested Free Tests

Related Content

CA Foundation Courses

Other Courses

How To Prepare?

Other Exams

Company