According to double entry system of bookkeeping, every financial transaction affects two sides.
One is debit and another is credit.
Debit transactions are recorded in left hand side and credit transactions are recorded in right hand side.
Different financial transactions are classified into personal account, real account and nominal account.
In personal account: |
In real account: |
In nominal account: |
Receiver Dr |
What comes in Dr |
Expenses or loss Dr |
Giver Cr |
What goes out Cr |
Income or profit Cr |
Example: Manoj started business with cash Rs 200,000.
Here, Manoj is personal account.
His capital is also personal account; it is credited.
Cash is real account; it is debited.
Journal Entry
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Cash account |
Dr |
|
200,000 |
|
|
To Manoj’s capital account |
|
|
|
200,000 |
|
(Being: business started with cash) |
|
|
|
|
|
|
|
|
|
|
It means under double entry system of bookkeeping:
Every transaction has two effects. One is debit and other is credit.
In this system, both receiving and giving (debit and credit) aspects are recorded.
It is the most modern, progressive, scientific and best system to recording financial transactions.
Definitions of double entry system of bookkeeping |
According to Oxford Dictionary, “Double entry system is keeping financial records in which each piece of business is recorded as a credit in one account and a debit in another.” According to R Lewis, “The specific technique which reflects the concept of duality is known as double-entry bookkeeping.” |
Keep in Mind (KIM)
Debit is taken from Italian ‘debito’ means owed to the proprietor. Credit is taken from Italian ‘credito’ means owed from the proprietor. Book means memorandum, journal and ledger. There are three types of accounts i.e. personal account, real account and nominal account. The details of these accounts are given in chapter 3 (Journal Entry) |
There are many advantages of double entry system of bookkeeping; out of them, some advantages are as follow:
Double entry system is a complete system of bookkeeping.
It records not only each and every financial transaction but also feature of each transaction.
More than 180 countries use double entry system of bookkeeping.
A systematic technique is followed in recording financial transactions in double entry system of bookkeeping.
Financial transactions are recorded in a systematic and chronological order with suitable narration.
The double entry bookkeeping system of bookkeeping is a scientific system.
It has its own set of principles and rules.
Under those principles and rules, two aspects of every financial transaction are recorded i.e. debit and credit.
Double entry bookkeeping system is based on the double entry principle which means ‘for every debit amount matching credit amount’.
Therefore, it helps to ensure arithmetical accuracy of financial transactions.
This system helps to calculate the true profit or loss of a business.
To find out profit or loss, income statement is prepared for a given period.
Double entry bookkeeping system also helps to find our financial position of the business.
To know financial position, balance sheet is prepared for a given period.
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The double entry bookkeeping system is a scientific system of keeping the record of financial transaction; the main features are:
Double entry system is the perfect accounting to record financial transactions.
This system is applied by more than 180 countries in the world.
Under double entry system of bookkeeping, accounts are classified into personal, real and nominal.
In personal account, it shows name of person and firm.
In real account, it shows transactions of different assets.
In nominal account, it shows expenses and incomes.
Under double entry system of bookkeeping, every monetary transaction has two fold effects; one is debit and another is credit.
In personal account, one is receiver and another is giver.
In real account, one is comes in and another is goes out.
In nominal account, one expenses and another is income.
Under this system, ownership will be transferred from one person to another.
Because there are two effects one is receive and another is giver.
Financial transactions are either in cash or on credit.
Under this system, business and business person are separate.
Business and its owner are treated as a separate from each other.
Business expenses are part of business expenses.
Expenses of owner are part of drawings.
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Click on link for YouTube videos CHAPTERS OF CLASS 11
ACCOUNTING EQUATION http://tiny.cc/c89jkz
BASIC JOURNAL ENTRIES IN NEPALI http://tiny.cc/uaakkz
BASIC JOURNAL ENTRIES http://tiny.cc/8aakkz
JOURNAL ENTRY AND LEDGER http://tiny.cc/caakkz
LEDGER http://tiny.cc/haakkz
SUBSIDIARY BOOK http://tiny.cc/399jkz
CASH BOOK http://tiny.cc/889jkz
TRIAL BALANCE & ADJUSTED TRIAL BALANCE http://tiny.cc/c59jkz
BANK RECONCILIATION STATEMENT (BRS) http://tiny.cc/q59jkz
DEPRECIATION http://tiny.cc/ugakkz
FINAL ACCOUNT: CLASS 11 http://tiny.cc/y89jkz
ADJUSTMENT IN FINAL ACCOUNT http://tiny.cc/keakkz
CAPITAL AND REVENUE http://tiny.cc/peakkz
SINGLE ENTRY SYSTEM http://tiny.cc/n19jkz
NON-PROFIT ORGANIZATION (NON-TRADING CONCERN http://tiny.cc/j09jkz
GOVERNMENT ACCOUNTING http://tiny.cc/hcakkz
GOSWARA VOUCHER (JOURNAL VOUCHER) http://tiny.cc/hcakkz
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