Double entry bookkeeping is a method of accounting; it is a system of bookkeeping that is every transactions has two entry, i.e., double entry bookkeeping, to an account which requires a corresponding and opposite entry to a different account. For example, recording receipts of $500 would require making two entries: a debit entry of $500 to an cash account and a credit entry to an Income account.
In Double entry bookkeeping each transaction has been analyzed, and reveals two aspects.
The other aspect will/ shall be giving aspect or outgoing aspect or income/gain aspect. This is termed as the Credit aspect.
Namely the two aspects called as Debit aspect and Credit aspect which form the basis of Double Entry bookkeeping.
The double entry bookkeeping system is so named because of it records both the aspects of a transaction. Double Entry Bookkeeping Excel Template is widely used to calculate the transactions. Apart from Excel Double Entry Bookkeeping Software used to make easy this works.
The basic principle of this system is, for every debit, there must be a corresponding credit of equal amount and for every credit, there must be a corresponding debit of equal amount. Then you can understand very easy this concept. You can find lot Example of Double Entry Bookkeeping in internet sources. just Google it.
Features of Double Entry Bookkeeping
- Every business transaction affects two accounts.
- Each transaction has two aspects, i.e., debit and credit.
- It is based upon accounting assumptions concepts and Principles.
- Helps in preparing trial balance which is a test of arithmetical accuracy in accounting.
- Preparation of final accounts with the help of trial balance.
Double entry doors follows that the sum of debits and the sum of the credits must be equal in value.
Double entry system is governed by the accounting equation. If revenue equals expenses, the following accounting equation must be true:
Assets = liabilities + equity
For the accounts to remain in balance, a change in one account must be matched with a change in another account. These changes are made by debits and credits to the accounts.
The following are the procedure for recording a transaction in double entry accounting are as under:
- Debits are recorded on the left side of a T account in a ledger. In case Debits side increase balances in asset accounts and expense accounts and decrease balances in liability accounts, revenue accounts.
- Credits are recorded on the right side of a T account in a ledger. In case Credits increase balances in liability accounts, revenue accounts, and decrease balances in asset accounts and expense accounts.
- Debit accounts are asset and expense accounts that usually have debit balances, i.e. the total debits normally exceeds the total credits in each debit account.
- Credit accounts are revenue (i.e., income, gains) accounts and liability accounts that normally have credit balances.
What are the books has to maintain in double entry bookkeeping?
Journals – Books of Prime Entry
- Sales Invoice Daybook – it records customer invoices
- Bank Receipts Daybook it records customer & non customer receipts
- Cash book
- Return inwards day book
- Return outwards day book
- Purchase Invoice Daybook it records supplier invoices
- Bank Payments Daybook it records supplier & non supplier payments
In Wiki’s books of accounts you can see this term well explained.
- Customer Ledger
- Supplier Ledger
- General Ledger (Nominal Ledger)
- Bank Account Ledger
- Trade Creditors Ledger
- Trade Debtors Ledger
What are the Benefits of Double Entry Accounting System?
The benefits of Double Entry Bookkeeping Systems are follows
- Complete record of transactions
- A check on the accuracy of accounts
- Ascertainment of profit or loss
- Knowledge of the financial position
- Helps in decision making
- Detection of fraud
- How To Do Double Entry Bookkeeping System?
- Double Entry Accounting Disadvantages
- 17 Diffrences Between Single Entry Vs Double Entry Bookkeeping
Originally posted 2014-09-14 01:23:44.