Double entry system
Double entry system is a systematic and scientific accounting concept that states each financial transaction has equal and opposite effect in both side of account as it assume that every financial transactions has two aspects.
It satisfied the following accounting equal; Assets= Liabilities + Equity.
In B.S 1993, Biratnagar Jut mil used the double entry system for the first time in the private sector in Nepal.
Features of double entry system
Double effect of each financial transaction into two different accounts on two opposite side.
Equal effect on both side of account.
Recognize every financial transaction has two aspects named Debit’ & ‘Credit’. Scientific, complete, and reliable method of an accounting system.
Based on universally accepted accounting concept of accounting.
Transfer of ownership from one person (who is giver) to another person (who is receiver)
Separate existence of business firm and its owner.
Classified account into person, nominal, and real account.
Complex to understand, time consuming, expensive and is not suitable for small business firm.
Basis of preparing financial statements. Keep record of complete financial transaction Compare and analyze financial statement.
Identify and prevent accounting errors and frauds
Importance or advantage of double entry system
It provides accurate result related to financial position of a business firm.
It ascertains profit and loss of a business firm by preparing profit and loss account for given period of time.
It is useful in controlling cost by providing necessary information.
It provides relevant financial information to various users of accounting for their making appropriate and effective decision.
It is helpful in preparing Trial balance and financial statements.
It helps to detect and prevent frauds and accounting error by monitoring financial transaction made by a business firm.
Since it is universally accepted accounting concept, it can be used by anyone for keeping the record of financial transaction.
It keeps record of financial transaction systematically and scientifically with suitable narration
Double entry system is scientifically correct methods of accounting as it assume that each accounting transaction do have two aspects i.e. debit and credit. Therefore, it provides reliable information about the transactions for making appropriate decision.
