The Concept of Double Entry Accounting System

Double entry accounting system is the basic accounting system that records the effects of a transaction from both the seller and the buyer perspective. The double entry accounting system provides a complete view of company financial affairs. There are two sides of a double entry accounting system the Debit side and the Credit side. The basic principle in double entry system is that for each and every Debit entry there must be an appropriate Credit entry as well. In other words this principle is also known as Duality Principle of accounting.

Both the Debit and Credit entries have different effects on the accounts of the company. For example the result of Debit entries may be an increase in assets, increase in finical expenses, and decrease in equity and liability of the company and a decrease in the overall income of the company. On the other hand the effect of Credit entries can be a decrease in the assets and the expenses of the company, increase in the liability and equity and an increase in the income of the company. The aim of the double entry accounting system is that the accounting equation must always be balanced as under:-

Financial Capital = Assets – Liabilities

With each entry of Debit or Credit the accounting equation must be kept in equilibrium

An example of Double entry system may be referred to a purchase of a machine via cash by a company. Here machine is considered to be the asset of the company where as the cash that is paid in purchasing the machine is considered to be the expense of the company.

Other Related Accounting Articles:

• Debit and Credit Explained
• Journal Accounting
• Accounting Equation
• Definition and Explanation of Single Entry System
• Accounting Principles and Accounting Equation
• Historical Cost
• Petty Cash Accounting
• Current Liabilities Explained
• Residual Income
• Accounting Concepts