Double Entry book-Keeping System TS grewal
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- Meaning and concept
Every Transactions Has two aspects. A system of accounting in which both the aspects of each transactions are recorded as per prescribed rules is called double entry book-keeping system. It doesn’t mean that every transactions is recorded at the other places. But One aspect is recorded at one place and other aspect is recorded at the other places. For example. Rs 100 is Received From Ram. Thus, it has two two aspects (i) Giving by Ram which is recorded at credit side of Ram account.
Double Entry book-keeping system is simply a recording system which records dual affects of each business transaction. It can be defined as a system of accounting in which out of the two aspects of a transaction , one aspects is debited and other aspects is credited according to certain prescribed rules.
“The specific technique which reflects the concept of duality is known as double entry book-keeping”.
“The double book-keeping system seeks to record every transaction in money or money worth in its aspects – The receiver benefits by one account and the surrender of a benefit by another account, the former entry being made to debit of the account that receives it and another that receives it and the latter to the credit of account that surrender it”
Features of Double entry book-keeping system :
(i)Two fold effect :
Every transactions must have two fold effect debit and credit. Each transactions involves a debit entry on one account and corresponding credit entry in another account. It means each and every transactions affect two accounts simultaneously.
(ii) Equal effect :
It is assumes that the total amount of the debit entries must be equal to the total amount of the credit entries for any suggestion.
(iii) Changes in ownership”
Ownership will be transferred from one person to another. Hari Purchase furniture from Ram. Ownership of furniture transferred from Ram to Hari and Ownership of cash transferred from Hari to Ram.
(iv) Classification of account :
Accounts are classified into personal account, real account and nominal account.
Advantages and Importance of double entry book-keeping system
- It helps to maintain complete record of business transactions.
- It helps to find out operating results i.e net profit earned or loss incurred by preparing income statement.
- It helps to know financial position e.g exact amount of debtors and creditors stock as well as the fixed assets etc. by preparing balance sheet.
- It helps for Checking arithmetical accuracy of the record transaction and to reveal the errors. It also Helps to find and prevent Frauds and manipulations.
- It is accepted by court and tax authorizes since the transactions are recorded in a systematic and scientific way.
- It provides the accounting information to the management to make decision.
- It Facilitates for comparative studies.
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Basic Termninology and rules of debit and credit
There are some terms which are frequent used in according . Some important terms are described below :
The things, Properties, knowledge skill which help to generate income n future are called assets. The Resources which help to continue manufacturing trading and service activities are called assets. The valuable resources owned by an organization and acquired money cost are known as assets. Some important assets are discussed below.
(i) Fixed assets :
The assets which are acquired to use for the long period to generate income are called fixed assets. These assets are purchased for using purpose . Some examples of fixed assets are land and building , plant and machine , vehicles , premises , leases , furniture etc.
(ii) Intangible assets :
The assets which are invisible and have no physical entity are known as intangible assets. Goodwill, patent , copyright, trademark, brand name etc are example of fictitious assets.
(iii) Investment :
The amount invested in the purchase of equity in the purchase of equity share, preference share , debenture and bond of other company are investment.
The amount of money and other properties which is invested by proprietor to start business is called capital . It is also called as net worth or owner equity. It is the excess amount of assets over liabilities.
The amount of money Which is to be paid to other person and institutions against the use of their goods things , properties or cash is called liabilities. It is the financial obligation of an enterprise other than owner’s fund.
Some types of liabilities are explained below.
(i) Short-term Liabilities or current liabilities:
The Liability which is to be paid within a span of one year is called current liabilities e.g Creditors payables, short term loan , outstanding expenses, advance income, bank overdraft etc.
(ii) Long-term liabilities: Such Liabilities which are to be paid after a long period are called long term liabilities. E.g debenture, bond, loan secured loan etc.
The exchange of goods and services with money is called sales. This provides the ownership of goods and services by getting money .
The amount charged for goods sold or service. Rendered is known as revenue. It is The monetary expansion of aggregated of products or service transferred by an enterprise to its customers during a period of time.
The amount incurred in the process of earning revenue.
The tangible property held in store or ware house for sale using in productions process is called stock.
The amount which is paid or payable against receiving of goods and services is called purchase.
The persons or institutions From which money is to be received are called debtors.
Those persons and institutions to which money is to be paid are called creditors.
The legal and transferable document for loan is called Debenture.
Rules of Debit and credit:
There are two sides in every account. The left hand side of an account is called debit, it is denoted by Dr. and the right hand side of an account is called credit. It is denoted by Cr. in short. Classification of account is necessary to understand the rules of debit and credit.
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