Recording of Transactions - 1 — Account STD 11 Commerce — Question

Meaning of Double Entry System: According to this system every business transaction affects at least two accounts in opposite directions. For example, if the furniture is purchased in the business, furniture is increased whereas the cash is decreased. There can be no transaction in the business which affects only one account or which has only one aspect. As such, both the aspects of every transaction are recorded under this system. It may, however, be noted that the double entry does not mean that a transaction is recorded twice. But it means that at least two accounts are affected by a transaction - one account receiving a benefit and the other account yielding a benefit. The person or the account receiving a benefit is debited and the person or the account who gives something to the business is credited. The amount of every transaction is written twice, once as a debit and again as a credit. For example, we received ₹ 25,000 from Mohan. This transaction affects two accounts - Cash Account and the Mohan's Account. Cash account is receiving a benefit (as cash is coming in) and hence Cash account will be debited, whereas Mohan is yielding a benefit and hence his account will be credited.
Principles or Characteristics of Double Entry System: Double Entry System is based upon the principle that “Every debit has a credit and every credit has a debit”. Following are the important features or essentials of the double entry system.

1. Every bussiness transaction affects two accounts: Every business transaction has a two-fold effect, i.e., it affects two accounts simultaneously. One of them is debited and the other is credited. Certain transactions may affect more than two accounts but the amount of the accounts to be debited and credited will always be equal.
2. Recording of both personal and impersonal aspects: Both personal and impersonal aspects of a transaction are recorded in Double Entry. It is possible that both the aspects of a transaction may be personal or both may be impersonal or one may be personal and the other may be impersonal.

The advantages of Double Entry System are:

1. Scientific System: Double Entry System is a scientific system of recording business transactions as compared to other systems of Book Keeping. It helps attain the objectives of accounting.
2. Complete Record of Transactions: Under the system, both sides of a transaction are recorded. It is a complete record as it results in showing correct income or loss, assets and liabilities.
3. Arithmetical Accuracy of Accounts is Ensured: By the use of this system, arithmetical accuracy of the accounting work can be established throagh the Trial Balance.
4. Determining Profit or Loss: Profit earned or loss incurred during a period can be determined by preparing Profit and Loss Account.