Based on dual aspect concept, in this Double Entry System of Bookkeeping, business transactions involve dual separate accounts. Each transaction is posted on two different accounts and that too on opposite sides for equal value.
With most trading organizations following this mode of bookkeeping, it is to be noted that this mode depicts both credit and debit accounts.
In comparison to single entry systems, this double entry system is the more chosen option.
Benefits of Double Entry System:
There are certain specific advantages that make this the system most chosen option:
- This is perfect for determining profit and loss amount of a company during a particular period.
- It provides complete and detailed record of accounts and other financial transactions for a company.
- Since before making a final notation, it makes a trial balance from various ledger accounts that keeps a check on arithmetical accuracy in the books related to accounts.
- Since it is a detailed account of financial transactions, so chances of fraudulence are nil.
- There can be a meaningful comparison between operating and actual financial performance during a year.
- This is the account that is to be followed by authorities for noting down tax claims.
- In case of fire or any such untoward incident, with help of this system, total amount can be determined for claiming insurance money.
Given the wide range of advantages that it has, there are certain cases where this format is not acceptable by companies.
Backlogs of Double Entry System:
There are certain small industrial units that specifically make use of single entry system. Its major negatives are:
- Since this concerns dual accounts hence,a wider number of accounts and books have to be maintained.
- This results in greater costs and clerical labour.
- Though this process is detailed but in no way, it guarantees clear accuracy of mathematical values.
In spite of all these issues, this system is the most chosen one!