This essay explore the definition of the term Double Entry accounting, its processes and procedures. I will examine the five step of the double entry method in detail, and will compare and contrast this method to that of single entry accounting. The analysis concludes that with a discussion of the advantages of Double Entry and the reasons why this method has survived for so long. After complete this
Like most good ideas, the idea behind the double entry method is very simple. Describe the double entry method identify its advantages, and explain why the methods has survived so long
Double entry is an accounting methodology used to make sure that all accounts are properly balanced. This is a rather simplistic description of this system of bookkeeping. Accounting and Bookkeeping is the process of identifying, measuring, recording and communicating economic information about an organization. Bookkeeping encompasses the record-keeping aspect of accounting and therefore provides much of the data to which accounting principles are applied in the preparation of financial statements and other financial information. In this essay I will describe the double entry method, identify the advantages and why this method has survived so long.
The double entry accounting system provides a basic framework for the analysis of business activities. I am going to go further detail about the accounting procedures used to account for the operations of a business during a specific period. The transaction is analysed and processed in five steps. (See Appendix 1) These steps in the accounting cycle enable the accountant to combine and summarise the net results of many business activities into relatively concise financial reports.
Step one, The transactions are analysed from source documents. Source documents are printed or written forms that generated when the firm engage in business transactions.
Step two, Recording a transaction in a journal in this system the financial of an organisation is analysed as a consisting of many interrelated aspects, each of which is called an account Every transaction is identified by two aspects which is referred to as Debit , on the left side and credit on the right side.
Each of these two aspects has its own effect on the financial structures depending on their nature. The certain accounts are increased with debits and decreased with credit and other accounts are increased with credits and decreased with debit. For example, the purchase of merchandise for cash increase the merchandise account (a debit) and decrease the cash account (a credit). If merchandise is purchased on the promise of future payment, a liability would be created and the journal entry would record an increase in the merchandise account (a debit) and increase in the liability account (a credit).
Step three, After the transactions have been journalised, the next step is to transfer the debits and credits in each journal entry to the appropriate general ledger.
Step four, Adjustment is the next step after the bookkeeping procedures have been completed.
Step five, Once the adjustment are calculated, the accountant prepare
a Trial Balance. Every amount debited and credited in the ledger must be equivalent. To check this an accountant need to prepare a trial balance. The trial balance proves whether the ledger is in balance or not.
Double entry has many advantages over the single system. First of all, There is more control in the system, as there are more opportunities to discover if the system is in balance and to take action if it is not. On the other hand, in single entry there is a lack of control in the system, since it is not possible to know if the statement of assets and liabilities will balance until the reports are complete.
Secondly, preparation of reports is easier since more summarised information is available while in single entry it is quite difficult to prepare the reports from the recording system and really need an accountants to interpret the data.
Thirdly, it is also easier to obtain information about various aspects of the business since there are separate records related to each type of transaction as well as the systems suits all type and sizes of business since it is easy to expand and adapt.
Finally, It’s more accurate than single entry, it is easier to check for accounting errors with double entry because all the ledgers have corresponding ledgers. Nowadays, many accounting software are based on this double entry method. For example, Mind Your Own Business and Quickbook Pro.
This method has survived so long because people can do this method manually without using a computer. It is effective method. And its because of there are many advantages of using Double Entry. It increased the control and more efficient monitoring of error. Its easier report preparation.
In conclusion, the systematic approach of double entry accounting facilities easier tracing of errors, providing increased control over accounting information. It is also easy to use in terms of recording. In particular, it is simplify the report preparation process significantly.