Double Entry Bookkeeping System || Concept, Meaning & Notes || Grade XI ||

Grade XI 

Chapter - 2         

Double Entry Bookkeeping System

Meaning:

Double entry book keeping system is a modern and scientific system of recording financial transactions. It recognizes the two aspects of every financial transaction and both of these are recording books of accounts. The system of making two entries for recording a transaction in the books of each contracting party is called the double entry bookkeeping system.

Features of double entry bookkeeping system:

1. Double effect: - It follows the principles of double aspect by debiting and crediting the transactions. Every transaction has two fold effects : debit and credit. So, it has features of duality in the accounting system.

2.  Equal effect: - It assumes that debit must be equal to credit amount. It considers the effect of equal amounts on both sides of the account. The same amount is shown on debit and credit.

3.  Arithmetical accuracy: - Double entry book keeping system checks the arithmetical accuracy of recordings by preparing trial balance. Since each transaction is recorded on the debit side and credit side for the same amount the total amount of debit and credit of all the transactions must be equal. So this system ensures arithmetical accuracy.

4. Scientific system: - Double entry system is based on various principles, conventions and assumptions. Under this system, recording of transactions are made systematically, using a set of principles. So, it can be said to be a scientific system of recording financial transactions.

Advantages of double entry bookkeeping system:-

1. Keep complete record of each transaction:- Double entry book keeping system of accounting presents complete record of transactions. It records all the financial transactions by dividing them into personal, real and nominal accounts. It records both aspects of such transactions to reveal a complete and clear picture of the organization.

2. Determine true profit or loss:- With the help of a double entry system, profit and loss accounts can be prepared easily which helps to ascertain the results of business operations that are profit and loss. This system provides information of all incomes and expenses which help to determine true profit or loss.

3. Determine true financial position: - Financial position. Double entry system helps to prepared balance sheet by providing details of assets and liabilities of the business, which helps to show the true

4. Checks the arithmetical accuracy:- As both aspects of every transaction are recorded, It helps to check the arithmetical accuracy by preparing trial balance.

Disadvantages of double entry book-keeping system:-

       The disadvantage of double entry system `book-keeping system are as follows:

a) No record of all business activities: - Under this system all the business activities cannot be recorded. It only records the financial transaction but ignores the non-financial transaction i.e. is qualitative activities of business.

b) Expensive:- This system involves the maintenance of a number of account books. So, application of this system involves higher cost.

c) Complication:- This system requires strict principal or rules of accounting. Accounts cannot be maintained without adequate knowledge of accounting so, it is complicated to maintain this system.

d) Failure to disclose all errors:- Under this system only arithmetical accuracy of the accounts is checked by prep [airing trial balance .however, there are some error s which cannot be disclosed under this system like complete omission of disclose under this system like complete omission on of transaction, recording of wrong amounts etc.

 

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