Double Entry System Advantages and Disadvantages: Any business transaction involves at least two accounts which we call Debit and credit. As said above, the double entry system assumes every transaction has two aspects Debit and credit. Both of these aspects should be recorded in books of accounts. It is considered as a scientific system of accounting.
It is named so because it records both aspects of a transaction. For example, when we buy something for business we have to record both the aspects involved like the thing we bought and the thing we paid or gave for that. Without applying the double entry concept, accounting records would only reflect a partial view of the business’s affairs. Must Check Limitations of Accounting.
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Double Entry System Advantages and Disadvantages
The double entry system is based on the principle that for every Debit entry, there will always be an equal Credit entry. This is known as the Duality principle.
Advantages of Double entry system :
(1) Accuracy :
More accuracy can be achieved by following a double-entry system in Accounting as it has been proven to be a systematic method of recording financial transactions.
(2) Easy to detect errors and omissions :
In a double-entry system, if we commit any errors or omissions in the preparation of financial statements it is very easy to detect them as this system is based on recording both aspects of a transaction. You may also like Accrued Liabilities.
(3) Consistency :
The results of one period can be compared with the corresponding period as this system enables Consistency in the preparation of accounts.
(4) Helps in decision-making:
A double-entry system ensures that all the relevant financial data is recorded in books of accounts. So whenever we require any customized report then we can generate from this data which helps is decision making.
(5) Indicates financial position :
The double system supplies the necessary information for depicting the financial position of the entity. As it facilitates to preparation statement of financial performance and financial position, it’s very easy to know the financial position on a specific date.
(6) Globally accepted :
This system is based on Generally Accepted Accounting Principles. So it is a globally accepted system.
Disadvantages of the Double entry system:
(1) Very difficult to understand when compared to a single-entry system.
(2) Time consuming.
Must Check List of Ind AS.
