the principles of double entry bookkeepingEvery transaction has two effects. For example, if someone transacts a purchase of a drink from a local store, he pays cash to the shopkeeper and in return, he gets a bottle of dink. This simple transaction has two effects from the perspective of both, the buyer as well as the seller. The buyer's cash balance would decrease by the amount of the cost of purchase while on the other hand he will acquire a bottle of drink. Conversely, the seller will be one drink short though his cash balance would increase by the price of the drink. Accounting attempts to record both effects of a transaction or event on the entity's financial statements.
Rules of Debit and Credit
The principles of double entry bookkeeping
Double-entry bookkeeping , in accounting , is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. The double-entry has two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-hand side is credit. In a normally debited account, such as an asset account or an expense account, a debit increases the total quantity of money or financial value, and a credit decreases the amount or value. On the other hand, for an account that is normally credited, such as a liability account or a revenue account, it is credits that increase the account's value and debits that decrease it. In double-entry bookkeeping, a transaction always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal.
In Double Entry System, transactions have a dual aspect, every transaction involves two parties — debit and credit where and they are equal. The most scientific and reliable method of accounting is the Double Entry System. One must have a clear conception of the nature of the transaction to understand the double-entry system. Every transaction involves two parties or accounts — one account gives the benefit and the other receives it. In every transaction, the account receiving a benefit is debited and the account giving benefit is credited. The process of keeping account accepting this dual entity i. Every transaction affects the accounting equation of a business.
The double entry bookkeeping principle is profoundly important in the world of accounting. It is essential that students of accounting gain an understanding, from the outset, of this principle that is more than years old. This best way to explain the double entry bookkeeping principle is to give an example of transactions from the books of the imaginary organisation called Lots of Fun Pty Ltd. Your job as an accountant or a bookkeeper is to correctly record these transactions in the financial ledgers of the organisation. You have to record one debit affect and one credit affect for each transaction. Of course, these days modern account software does the job for you but understanding the principle is important in understanding how accounting software works. Would you like to try some double-entry bookkeeping exercises?
The principles and practice of double-entry bookkeeping
ACCOUNTING CONCEPTS - DOUBLE ENTRY SYSTEM PART 1
Double entry, a fundamental concept underlying present-day bookkeeping and accounting, states that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the accounting equation :. With a double entry system, credits are offset by debits in a general ledger or T-account. In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. The double-entry system of bookkeeping or accounting makes it easier to prepare accurate financial statements and detect errors. Bookkeeping and accounting are ways of measuring, recording, and communicating a firm's financial information.