What is Double Entry System
In Double Entry System or Double Entry Bookkeeping, for every Debit, there is always a Credit in an equal amount or in other words every Business Transaction has two fold effects i.e., One Account is debited and other is credited and both these sides are equal in amounts. So, this Concept of Accounting focuses on Dual Aspect of Business Transactions.
Due To Dual Aspect of Accounting Data, Assets are always equal to Liabilities and Owner’s Equity or we can say that it is a Fundamental Principle that:
Assets = Liabilities + Equity
So, every transaction affects Assets Side (or Left Side ) and Liabilities & Equity Side (or Right Side) of the Accounting Equation at the same time. The above Equation is called Accounting Equation and it is the basic of Accounting Procedures.article
For Example, Mr. A sold goods worth Rs. 10000 for Cash, then there are two accounts involved i.e., One is Cash and other one is Sales. Here, Cash is a Current Asset so it affects Assets side and it is coming to the business, so we Debit it and Sales affects Equity side as it is the profitable activities of the owner of the business. As Sales is also increasing as goods are
going from the business, so we Credit it as shown below:
Cash a/c 10000
Sales a/c 10000
(Sold Goods For Cash)
Double Entry System adopted by larger business firms where the huge amount of transactions are recorded on daily basis. It is also applied in the business where proper Books of Accounts
are maintained unlike Incomplete Accounting System (Single Entry System). The Double Entry Bookkeeping System ensures more accuracy since the total of Debit Side is equal to Credit. However, this system is expensive as larger
amount of transactions take place and proper recording of Accounts require expensive Computerized System.
So, Double Entry of Bookkeeping states that Every Debit and Credit are equal in monetary value in a business transaction.
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