explain double entry system
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The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase. If a company pays $200 for an advertisement, its Cash account will decrease and its account Advertising Expense will increase.
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The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase. If a company pays $200 for an advertisement, its Cash account will decrease and its account Advertising Expense will increase.
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Double EntryAccountingdates back to Venice, 1494. As it’s name suggests, it means that every transactionis entered twice of a business. Once as a debit and once as a credit.The advantages are,
*.It provides a specific means of dealing with opening and closing balances (at thestart and end of the year)
*.It provides an arithmetic check on your bookkeeping, since the total amount of debitentries must equal the total amount of credit entries. (There’s something fundamentally wrong if this isn’t the case)
*.Using a Sales Ledger and Purchase Ledger means you can track who owes the business moneyand who the business owes money to much more easily. (However, it is possible to operate a simple sales ledger and purchase ledgerusing single entry)
*.You can see the financial position of the business much more clearly, at any given time, using double entry.
*.Done properly, itcan help detect and reduce accounting errors.
*.Double Entry bookkeeping makes producing the year end accounts easier. If you use an accountant to produce your year-end accounts, having good double-entry records may lower your accountancy fees.
*.It provides a specific means of dealing with opening and closing balances (at thestart and end of the year)
*.It provides an arithmetic check on your bookkeeping, since the total amount of debitentries must equal the total amount of credit entries. (There’s something fundamentally wrong if this isn’t the case)
*.Using a Sales Ledger and Purchase Ledger means you can track who owes the business moneyand who the business owes money to much more easily. (However, it is possible to operate a simple sales ledger and purchase ledgerusing single entry)
*.You can see the financial position of the business much more clearly, at any given time, using double entry.
*.Done properly, itcan help detect and reduce accounting errors.
*.Double Entry bookkeeping makes producing the year end accounts easier. If you use an accountant to produce your year-end accounts, having good double-entry records may lower your accountancy fees.
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