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Double Entry System Advantages & Disadvantages
Any business transaction involves at least two accounts which we call as Debit and credit. As said above , double entry system assumes every transaction has two aspects Debit and credit. Both of these aspects should be recorded in books if accounts. It is considered as a scientific system of accounting. It is named so because it records the both aspects of a transaction. For example when we buy some thing for business we have to record both the aspects involved like the thing we bought and the thing we paid or gave for that.Without applying double entry concept, accounting records would only reflect a partial view of the business’s affairs.
Double entry system is based on the principal that for every Debit entry, there will always be an equal Credit entry. This is known as the Duality Principal.
Advantages of Double entry system :
(1) Accuracy :
More accuracy can be achieved by following double entry system in Accounting as it has been proved to be a systematic method of recording financial transactions.
(2) Easy to detect errors and omissions :
In double entry system if we commit any errors or omissions in preparation of financial statements it is very easy to detect them as this system is based on recording both the aspects of a transaction.
(3) Consistency :
Results of one period can be compared with the corresponding period as this system enables Consistency in preparation of accounts.
(4) Helps in decision making :
Double entry system ensures that all the relevant financial data is recorded in books of accounts. So when ever we require any customised report then we can generate from these data which helps is decision making.
(5) Indicates financial position :
Double entry-system supplies necessary information for depicting the financial position of the entity. As it facilitates to prepare statement of financial performance and financial position, it’s very easy to know the financial position as on a specific date.
(6) Globally accepted :
This system is based on Generally Accepted Accounting Principles. So it is a globally Accepted system.
Disadvantages of Double entry system:
(1) Very difficult to understand when compared to single entry system.
(2) Time consuming.