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Unit 1: Introduction to Accounting

4. Check for fraud: Scope of fraud is limited as it minimizes the chances of fraud because of Notes
scientific system.
5. Ascertainment and knowledge of financial position of the business: Under this system, it
is possible to know the financial position of the business at any time. For this purpose
Balance Sheet can be prepared any time.

6. Possibility of full control over business: Under this system full information is available
which enables the management to exercise full control over the business.
7. Easy accessibility of information: Under this system all information is easily available
and accessible which is very helpful and useful for the management.
8. Possibility of comparative study: Under this system, it is possible to prepare comparative
statement and also compare the previous year’s results with the current year’s result and
take corrective steps as and when necessary to improve the operational results.
9. Reliable information: Under this system information received is reliable.

Steps involved in Double Entry System

1. Preparation of Journal: Journal is called the book of original entry. It records the effect of
all transactions for the first time. Here the job of recording takes place.
2. Preparation of Ledger: Ledger is the collection of all accounts used by a business. Here the
grouping of accounts is performed. Journal is posted to ledger.
3. Trial Balance preparation summarizing: It is a summary of ledge balances prepared in the
form of a list.

4. Preparation of Final Account: At the end of the accounting period to know the
achievements of the organization and its financial state of affairs, the final accounts are
prepared.
Rules of Double Entry System

As per the principles of the double entry system, each transaction of the business is recorded at
two places. In other words, two entries are made for every financial transaction of the business.
If someone is giving something in the business, it has two sides – one is giver and other is
receiver. The system of double entry can be understood easily by an equation which is called
accounting. Following are some transactions of the business to explain it.
For example
1. Mr. Kamlesh started business with cash of 2,00,000.
In this transaction, one side cash is coming into business and in the other side capital is
being brought by Mr. Kamlesh. Thus:
Capital = Assets (Cash)
2,00,000 = 2,00,000
2. In the next transaction, if a plant of 50,000 is purchased in cash, this transaction will also
leave two sides. In one side cash is going and in other side plant is coming. In this situation,
the accounting equation will be as follows:
Capital = Plant + Cash (Assets)
2,00,000 = 50,000 + ( 2,00,000 – 50,000)

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