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Financial Accounting
Notes Self Assessment
Fill in the blanks:
9. …………………… includes recording of journal, posting in ledgers and balancing of
accounts.
10. Book-keeping provides a permanent record of each …………………… .
1.4 Methods of Accounting
Business transactions are recorded in two different ways.
1.4.1 Single Entry
It is incomplete system of recording business transactions. The business organization maintains
only cash book and personal accounts of debtors and creditors. So the complete recording of
transactions cannot be made and trail balance cannot be prepared.
1.4.2 Double Entry
It this system every business transaction is having a twofold effect of benefits giving and benefit
receiving aspects. The recording is made on the basis of both these aspects. Double Entry is an
accounting system that records the effects of transactions and other events in at least two accounts
with equal debits and credits.
The modern system of book keeping is based on the double entry system. Therefore, we are
discussing this system only. The father of this system is the Lucas Pacioli. He gave the details of
this system in his book “De Compute Set Scripturise” in Italy in 1494 A.D. As per this system every
transaction of the business has double aspects/double effect. Therefore, every transaction must
be recorded at two places or accounts. If in a transaction someone is a giver, some other will be
a receiver.
Did u know? This system of accounting is also called Mercantile System or Western System
of Accounting.
This system is so organized, accurate, complete and scientific that it is now adopted universally.
In the words of Keller, M.J. Keller in – Intermediate Accountancy, “The most common system of
accounting data for an enterprise is the double entry system. As the name implies, the entry
made for each transaction is composed of two parts, a ‘debit’ and a ‘credit’.
Importance of Double Entry System
As we know that double entry system of accounting is a systematic and scientific system of
accounting, so it offers a number of advantages. The following are the most important advantages
of the system:
1. Complete record of transactions: Under this system, recording of all transactions is done
whether related to personal or impersonal accounts.
2. Ascertainment of profit or loss: Under this system of accounting complete profit and loss
account can be prepared by which profit or loss of a particular period can be ascertained.
3. Mathematical check on accuracy: Every debit has a credit, so it is an accurate system as far
as mathematical accuracy is concerned which may be proved by preparing trial balance.
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