Meaning of Double Entry System of Book-KeepingDouble entry system is the most progressive, scientific and complete system of recording the financial transactions of a business. The rules of recording transactions under this system are so definite and clearly stated that the system is being used extensively in all countries.
Under 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.
Note: 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 β 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.
Example: We received βΉ500/- from Ram. This transaction affects two accounts β Cash Account and the Ramβs Account. Cash Account is receiving a benefit (as cash is coming in) and hence Cash Account will be debited. Whereas Ram is yielding a benefit and hence his account will be credited.
Under this system, there are two approaches of recording business transactions
- Traditional Approach: Under this approach the transactions are recorded in different books of accounts i.e., Journal, Subsidiary Books, etc., through various accounts.
- Modern Approach: Under this approach transactions are recorded through accounting equations.