What is a double entry bookkeeping system? Feature of double entry systems

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With the help of this definition, we can conclude that the double entry systems is based the concept of cause and effects. It mean when a transaction takes place it affects two accounts simultaneously, one account being debited and another account being credited with equal amount.

what is a double entry bookkeeping system?Feature of double entry systems

Meaning and concept of double entry system
A double entry system of book keeping is the modern, scientific and systematic accounting system which was propounded by French citizen Lucas pacioli in 1494 A.D.

It refers to the system of recording the financial transaction
In case of a business, the assets and the right of the owner (capital) and the right of the outsiders (liabilities) against these assets should always be equal. It can be expressed in the form of following equation.
Assets = owner's equity + liability

s showing the dual aspects of each transaction. This concept stems from the real ground that there cannot be a transaction unless there are two parties to it. Each transaction involving the transfer of money, goods or service must have at least two parties: one the receiver, another is giver. The set of records based on this dually is called double entry system of book keeping.

William pickles, "The double entry systems seeks to record every transaction in money or money's worth in its double aspects- the receipt of a benefit by another account, the former entry being made to the debit of the account that receives it and the latter to the credit of the account that surrenders it."
J.R. Batliboi, "every business transaction has two-fold effect and that it affects two accounts in opposite directions an if a complete record were to be made of each such transaction, it would be necessary to debit one account and credit another account. It is the recording of the fold effect of entry transaction that has given rise to the double entry systems"

Feature of double entry systems
Double entry systems of book keeping are based on the principle that "every debit has a credit and every credit has a debit". Some importance features of double entry systems are as follows:
• Duality principle: this system appliers the principle of duality, it means a transaction has got two aspects & they are recorded in two opposite sides.
• Recording of personal and impersonal aspects: both personal and impersonal aspects of a transaction are recorded in double entry system.
• Use of certain rules for recording: there are certain specific rules for debiting and crediting various aspects of a transaction and credit and debits are made on the basic of these rules.
• Facility of trial balance for finding out accuracy: since one aspect of each transaction is debited and other aspect is credited the sum of all debits is always equal to the total of all credits. This helps in finding out arithmetical accuracy of the accounting record by preparing a trial balance.
Objectives/ importance/ advantages of double entry systems
In modern business scenario, the entry system of book keeping is taken as scientific and systematic, way of recording the business transactions, due to this significant feature, it has been adopted the countries over world. We can highlight importance with the help of following points.
• Scientific way of recording: double entry system of book-keeping is more scientific them and other systems of book-keeping because transactions are recorded in this systems according to certain specified rules.
• Complete record: under this system, complete records of all the transactions are recorded. if it is needed , full details of each and every transaction can be obtained.
• Facility of preparing trial balance: in double entry systems one aspect of every transaction is debited and other aspect is credited, therefore, total of all debits is equal to the total of all credits. As such, a trial balance can be prepared to check the arithmetical accuracy of the accounts.
• Preparation of Final Account: with the help of trial balance a traders can prepare final account which includes trading and profit and loss account & balance sheet to know the exact profit and loss earned by a business to find out the exact financial position.
• Legal Validity: Accountings through double entry system are accepted by court law as necessary documentary evidence. Income Tax authorities also rely on the books prepared under this system.
• Comparative study: under double entry, current year's result can be compared with the previous year result to judge the progress of the business.
• Suitability and popularity: double entry system is popular and suitable in all types of business whether small or big. The results prepared under this system are of vital importance for taking quick managerial decision.

The Accounting Process
The accounting process is a complete sequence of accounting procedures. Accounting, as an information system is the process of identifying measuring and communicating the economic information of an organization to its users who need the information for decision making.
1. Documenting the transactions
2. Classifying the transactions
3. Recording the transactions
4. Interpreting the transactions
5. Summarizing the transactions
6. Posting the transactions
These steps are explained below:
1. Documenting the Transactions: there should be some paper evidence of each transaction i.e. some evidence or documentation that the transaction occurred. The evidence may be suppliers by a document generated within the business or by a paper ta flow into the business from outside. Such documents are the real evidence of the transactions. The records prepared by book-keepers or accountants must be supported by documentary evidence. These documents reveal to accountants that transaction have occurred and initiate the accounting process.
2. Classifying the transactions: all transactions should be classified for recording in the book of original entry, also known as journals. For instance, all cash transactions are recorded in the cash book, credit sales in sales book, credit purchase book, and so on. Classification of a transaction will affect how and where it is recorded.
3. Recording the Transactions: it should be remembered that initial record of a transaction in the primary document, and accountants make the second record of the transactions in journal, cash book, sales book etc. manual, mechanical or electronic (computers) methods are employed for recording the business transactions.
4. Posting the transaction: posting is the process of entering in the ledger the information given in the journals. Leger is a set of accounts and ledger accounts arre a means of accounting information.
5. Summarizing the transaction: where a business has thousands of transaction annually, it is necessary to summaries their effect up to the finance of the business i.e., to condense the data into meaningful figures for the guidance of management. Trial balance, profit and loss account, balance sheet etc. Are the periodic summaries prepared.
6. Interpreting the Transaction: interpreting is an attempt to determine the meaning and significance of data shown in profit and loss account and balance sheet so that forecast may be made of the future prospects of the business.
Thus, recording of business transactions in the books if accounts start with journal, which is also knows as a book of original entry. This is followed by posting in ledger account and preparing summaries there from. These steps have been explained in detail in the following chapters.