Learning Goal: I’m working on a accounting writing question and need the explanation and answer to help me learn.
2) It enables the businessman to find out the profit or loss at any time. 3)It helps to prepare a trial balance.
4) It helps to prepare a balance sheet where the financial position of the business can be known.
5) It reveals the amount due to creditors and due from the customers. 6)It discovers and prevents errors and frauds.
Double entry accounting is a form of accounting that records both debit and credit transactions. There are two facets of any transaction: debit and credit. Each transaction is recorded on both the debit and credit sides.
Advantages of double entry system
- In contrast to a single entry, this is a scientific method of tracking business transactions. It assists in the rechecking and cross-checking of accounting documents.
- Both sides of a transaction are registered as debit and credit in this system, so we keep separate accounts for the purchase and payment.
- When we pass an entry on both sides, the account is automatically reviewed in this method. We will quickly find the error if both sides of the trial balance are not balanced.
- The profit and loss account indicates how much profit or loss was made over a given time.
- As long as we have the accounting books, we can analyze the profit and loss report and balance sheet of any two or more years.
- Since any transaction has two records, misappropriations and frauds can be easily identified.
- We will calculate the financial status of the company at the end of the year by preparing a profit and loss report and a balance sheet.
Disadvantages of double entry system
- The double-entry system is complex in nature since it must respond to various accounting standards and principles.
- Maintaining accounting books takes more time, that necessitates the recruitment of more staff, leading to a cost increase.
- Since their fees are too high, small companies cannot afford to hire anyone with proper accounting skills.
- Every transaction must be documented twice, resulting in larger books or the need for a more efficient computer to process data in electronic form.
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