Which of the following is the very basis of double entry system of book keeping?
Double-Entry is an accounting system to record a transaction in a minimum of two accounts. It is based on a dual aspect, i.e., Debit and Credit, and this principle requires that for every debit, there must be an equal and opposite credit in any transaction. Show
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ExplanationDouble-entry is the first step of accounting. To understand any accounting entryAccounting EntryAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more, one should know about this system. Each accounting transactionAccounting TransactionAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an accounting transaction. read more is recorded in a minimum of two accounts, one is a debit account, and another is a credit account. Also, the transaction should be balanced, i.e., the credit amount should be equal to the debit amount. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked Features of Double Entry
Principle of Double EntryDouble-entry is based on a simple principle, that for every debitDebitDebit represents either an increase in a company’s expenses or a decline in its revenue. read more, must have equal and opposite credit. There should be at least two accounts involved in any transaction. Debit Side = Credit Side The double-entry is based on the debit and credit accounts of the transaction. So, we need to understand what account kind of debits and what credits. There are three different types of accounts, Real, Personal and Nominal AccountsNominal AccountsNominal Accounts are the general ledger accounts which are closed by the end of an accounting period. Their balance at the end of period comes to zero so they don't appear in the balance sheet.read more. Rules of recording the transactions are decided based on the type of account. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked #1 – Real Accounts – Debit what comes in and Credit what goes out. Real accountsReal AccountsReal accounts do not close their balances at the end of the financial year but retain and carry forward their closing balance from one accounting year to another. In other words, the closing balance of these accounts in one accounting year becomes the opening balance of the succeeding accounting year.read more include Pant & Machinery, Buildings, Furniture, or any other Asset account. So when we purchase Machinery, the Machinery account is debited, and when we sell Machinery, the Machinery account is credited. #2 – Personal Accounts – Debit the Receiver and Credit the Giver. The personal account includes the account of any person like an owner, debtor, creditor, etc. When we make payment to our creditors, the receiver account is debited, and when we receive the payment, the giver account is credited. #3 – Nominal Accounts – Debit all Expenses and Losses and Credit all Incomes and Gains. Nominal accounts include all the Expenses, Income, Profit, and Loss accounts. For example, the Salary Paid account is debited, and the rent received account is credited. Example of Double EntryHere are a few transactions for which Journal Entries are to be recorded. Record the entries in the Books of A Limited. A Limited Purchases Goods worth $2,500 from B Limited on Credit. ParticularsDebitCreditPurchase A/c$2,500B Limited A/c$2,500A Limited makes a payment for the Goods next Month. A Limited Purchases Machinery worth $30,000 by paying cash: ParticularsDebitCreditMachinery A/c$30,000Cash A/c$30,000A Limited received Rent on Building $1,500: ParticularsDebitCreditCash A/c$1,500Rent Received A/c$1,500Difference Between Double Entry and Single EntryBasisDouble Entry SystemSingle Entry SystemMeaningIt is the method of accounting where the dual aspect of the transaction is recordedIt is the method of accounting where only one side of transaction is recordedNatureIt is a complex form of accounting.It is a simple form of accounting.AccuracyIt provides more accurate financial resultsSince it record only one side of transaction hence less accuracy.Scale of BusinessPreferable for large scale businessPreferable for small scale businessLevel of CompletionIt is a complete form of accountingIt provides incomplete resultsDetection of ErrorsErrors can be detected easilyDifficult to detect errors as only one side of transaction is recordedCostHigher cost as skilled staff is required to maintain the book of accountsLess cost as it is a simple form of accountingAdvantages
Disadvantages
ConclusionDouble Entry is the first step in maintaining a complete set of accounting. If the transactions are recorded correctly, the profit and loss account andA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more will provide accurate and complete results. Recommended ArticlesThis has been a guide to Double Entry. Here we discuss the rules and principles of double-entry along with its example, advantages, and disadvantages. You may also have a look at the following articles – Which basis of accounting is used to prepare books of accounts under doubleThe basic essence of the double entry system is that every transaction will affect two accounts. This is known as the debit and credit rule – every credit entry, there must be a corresponding debit entry. The double entry system is the one widely used and recognized in the accounting world.
What are the basis of keeping book of account?Methods of bookkeeping. Single-entry bookkeeping. Single-entry bookkeeping is a straightforward method where one entry is made for each transaction in your books. ... . Double-entry bookkeeping. ... . Cash-based or accrual-based. ... . Cash registers. ... . The journal. ... . The ledger. ... . Trial balance. ... . The cash flow statement.. Which of the following is importance of doubleDouble entry accounting reduces errors and boosts the chance of your books balancing. Companies massively benefit from using Double entry bookkeeping because, not only reducing errors, it helps with financial reporting and prevents fraud.
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