Double Entry Bookkeeping System

As general rule of accounting, every debit entry also has credit effect with the same value.  However it is possible that only one item is debt and two items are a credit, but value of both sides will remain equal. Double Entry bookkeeping is following the accounting principle and both aspects of transaction are updated in the journal/day book. It is started with journal updating and ends with relevant ledgers updating.

Example: Raw material is purchased for $500 in cash. Then Entry is Raw Material is Debited with $500 and $ cash is credit into the books.  That will be entered first in day book, and then will update the Cash and Raw Material account.


Features of Double Entry System

  1. Small and large business entity friendly: Every type of business can use it. From sole trader ship to companies.
  2. Accounting Principle: Process of double entry is as per accounting rules and regulations for the recording of bookkeeping.
  3. Nature of transaction: Every transaction is updated as per its classification, Like Owner’s deposits are maintained as capital, Capital and revenue nature also helps in cost and assets valuation.
  4. Strong financial accounting system. Due to each and every aspect and record updating, there is the strong base for accounting, which helps accountants and auditors for analysis the reports, which is not possible in Single Entry Bookkeeping


Advantages of Double Entry System

  1. Less chance of fraud and manipulation.
  2. Comprehensive data analysis
  3. Easy to costing and budgeting.
  4. Accuracy in profit and loss account
  5. Trial balance will be made on the basis of double entry system, which is not possible in single Entry system.
  6. Financial position can be access and monitor anytime.
  7. Helps with dealing Tax, Insurance and other authorities on the basis of strong bookkeeping system.

Disadvantages of Double Entry System

  • Time consuming for the small business entity, because detail working from voucher to trial balance.
  • Cost factor also increased with this system. In this system all relevant books need be updated. And for recording transaction an account should hire, who at least have basic knowledge of accounting.
  • Privacy issue. Due to involvement of multiple staff, secrecy of business also at risk.


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