Advantages of Double Entry System

In financial accounting, double entry system is the best system for recording the transactions. To know this system is necessary to entry in accounting profession. In other words, it has become the base of accounting. In this system, we record the transaction in two accounts. Every transaction affects two sides of two accounts. So, if we have to pass the entry of any transaction, we will write one account debit side and other any other account credit side. Always, both side total will agree. It has huge advantages in practical business life. But, there are some disadvantages which we can easily ignore after comparing it with its benefits.

Following are its main advantages:

1. Based on Scientific Accounting Equation :

If we study the history of accounting, we finds many clues which tell us that double entry system is fully based on scientific accounting equation. This equation shows two side one is asset and other is liabilities. If we compare both side, it will be always equal. It means assets = liabilities. So, if we pass the any entry on the basis of double entry system, we are apply this formula. We have to pass the entry in such a way so that one account's amount will include in assets and other account's amount will include in liabilities. In end, when we will compare our balance sheet, both side of balance sheet will be equal.

2. No Mathematical Mistake

After using this system of bookkeeping, accountant becomes confident that after making journal entries and ledger accounts, there will be no mathematical mistake because he has send amount in two sides of two different account. Every debit will be equal. He will either compare total of debit and credit or balance of debit or credit. In this system, he can clear his doubt by making trial balance. If there is mathematical mistake, trial balance will show difference.

3. Get Fast Accounting Reports

All most all accounting software respects double entry system. Either it is  quickbooks online which is used in USA or Tally software which is used in India and many other Asian countries. Just passing the voucher entries according to this system, you can get all accounting reports fastly without doing any further work of making ledger accounts, trial balance, profit and loss account and balance sheet. Software knows that it has to follow the rules. It means he has to send one amount in debit and other in credit. If we open the profit and loss account, what we see expenses in debit side and incomes in credit side. Balance sheet also shows two side one is asset and other is liability. Thanks double entry system, you are rock.