DOUBLE ENTRY SYSTEM
A systematic as well as scientific recording system of
transactions, which records both the accounts associated with a transaction as
one is debit and another is credit by using a set of its well established rules
-is known as double entry system.
It is known that every transaction requires at least two parties/accounts. To
run accounting systematically it's a must to record both the aspects/accounts
just like for clasping better using of two hands is a must. This system records
the debit and the credit aspects of a trisection with an equal amount of money
as they are arisen from the same transaction. Thus, according to this system,
for each debit there will be a corresponding credit of an equal amount and vice
versa. Example: When we buy machinery for
Tk.1,00,000. Obviously, it brings two changes - machinery, an asset, increases
by Tk. 1,00,000 and cash, an another asset, decreases by an equal amount of
money. While recording this transaction
in the books of accounts, both the changes must be recorded together. To record
increasing an asset (machinery) we will have to debit it, and to record
decreasing an asset (cash) we have to credit it. So the transaction will be
recorded as-
Machinery Tk. 1,00,000
Cash Tk. 1,00,000
Thus we see that for every transaction we records two
accounts, , generally which are affected by the transaction and that's why, the
system is known as double entry system. The man looms the concept first is Luca Pacioli, a Venetian
merchants. In 1494 he describes first the system of double-entry bookkeeping in
his publication Summa de Arithmetica, Geometria,
Proportioni et Proportionalita. It is regarded as the best and the only
scientific method of accounting system and universally accepted. It has been
built on well defined rules and principles which is the foundation of modern
accountancy. The
fundamental principle of double entry system lies in analyzing the two changes
(parties) involved in business transactions and properly recording of both the
changes in the books of accounts. There is no exception to this principle. If a
complete picture of the transactions is to be reflected through books of
accounts, the double entry system must be duly observed. Otherwise the books of
accounts will fail to provide complete information and the objectives of
accounting will be defeated.
Double Entry system seeks to record every transaction in money or money’s worth in its double aspect – the receipt of a benefit by one account and the surrender of a like benefit by another account, the former entry being to the debit of the account receiving the later to the credit of the account surrendering.
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