Question

Write the short note on double entry system of accounting

Answer 1

Answer:

Definition of Double-Entry System

The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts. The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Example of a Double-Entry System

To illustrate double entry, let's assume that a company borrows $10,000 from its bank. The company's Cash account must be increased by $10,000 and a liability account must be increased by $10,000. To increase an asset, a debit entry is required. To increase a liability, a credit entry is required. Hence, the account Cash will be debited for $10,000 and the liability Loans Payable will be credited for $10,000.

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Answer 2

Accounting is an art of recording, classifying and summarizing the transactions of financial nature measurable in terms of money and interpreting the results thereof. Two methods for accounting are Single Entry System and Double Entry System. Mostly, we convert to Double Entry for better accounting purposes.

Double Entry System:

Double Entry System of accounting deals with either two or more accounts for every business transaction. For instance, a person enters a transaction of borrowing money from the bank. So, this will increase the assets for cash balance account and simultaneously the liability for loan payable account will also increase.

It’s a fundamental concept encompassing accounting and book-keeping in present times. Every financial transaction has an equal and opposite effect in at least two different accounts.

Equation can be: ASSETS = LIABILITIES + EQUITY

Features of Double Entry Accounting System

• A transaction has two sides i.e. one giver of profit and other beneficiary.
• A transaction is divided into two aspects, debit and credit. One account is to be debited and the other is to be credited.
• Each debit should have its own corresponding and equal credit.

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