What is Double Entry System?
Double entry system is a system of book keeping which keep the financial transaction in debit and credit side. The double entry principle is first propounded by an Italian mathematician Luca De Pacioli in 1494 AD in his book Summa De Arithmetica on the “Accounting of Venice” chapter.
- In double entry system, each and every financial transaction is recored using the rule of debit and credit.
- Double entry system is modern, systematic, scientific, fundamental and widely adopted concept of accounting.
- It has two-fold effect on the accounting process.
- If there is debit then there must equal effect on the credit.
- Double entry system prevents accounting frauds and errors.
- It is used by all types of organization.
- Double entry system classifies transactions as revenue, expenses, assets, liability and equity.
- Assets = equity + liabilities
Features of Double Entry System
- It has double effect of every financial transaction.
- It has equal effect on both sides.
- It is complete, scientific, modern, reliable, systematic, fundamental method of accounting.
- It helps to prevent accounting frauds and errors.
- It is flexible for correction process.
- It help to enhance internal control system.
- It keeps the full record of economic transactions.
- It helps to make final accounts by analyzing, summarizing, categorizing the financial transactions.
- Concept of debit the receiver, credit the giver.
- It defines financial transaction in accounting equation as Equity = Assets + liability
- It categories the accounts as personal account, real account and nominal account.
Principles of Double Entry System
Double entry system is based on the certain principles. It follow universally accepted principles while preparing account. These principles are listed as follows.
- Principle of debit and credit
- Principle of two-fold effect
- Principle of equality
- Principles of preliminary entry
- Principle of accounting posting
Double Entry System in Nepal
Double entry system in Nepal is first adopted by Biratnagar Jut Mill in 1993 BS. This is first company to use double entry system in Nepal in private sector.
Difference Between Double Entry and Single Entry System
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