Question

Summarize Why it is important to use double entry accounting. Explain the benefits of double entry accounting for today

Answer 1

Double-entry bookkeeping is an accounting method to balance a business' books. For every journal entry credit (recorded under the company's equity side), there is an equal journal entry debit (recorded under the company's assets side.)

Benefit of using double entry system are as follows-:

Keeps complete record of each transaction:
Double entry system records all financial transaction by dividing them into three accounts – personal, real and nominal accounts.

Ascertains the result of business organization:
With the help of double entry system, a profit and loss account can be prepared easily, which helps to ascertain the results of business operations i.e. profit or loss.

Presents the financial position:
It helps to prepare balance sheet by providing details assets and liabilities of the business, which helps to present the financial position of the business.

Checks arithmetical accuracy:
It helps to check the arithmetical accuracy by preparing a summary report called ‘trial balance’.

Facilitates comparison:
Under this system, separate recording is made for each years transactions. Therefore, it facilitates comparison of one item of one year with similar item of previous year and helps to know its progress from year to year.

Reduces errors and other irregularities:
In this system, a transaction is recorded in two places (i.e. accounts). Therefore, it reduces the possibilities of frauds, errors and manipulation of accounts.