Earlier transactions in the books of accounts were recorded under single entry system. But this system had some shortcomings as there was not a complete record of all the transactions. Also problems were faced while preparing final accounts. Problems were also faced as there was no self balancing system of accounting which could guarantee, to some extent, the accuracy of the books of accounts. So a need was felt for some uniformly accepted system of accounting which could help in the verification of the accuracy of books to some extent. These problems were solved by the Double Entry System of accounting. This system has totally replaced the single entry system. This system is now followed universally.
Under this system of accounting, every transaction in business involves atleast two accounts. That is why this system of accounting is called the ' Double Entry System'. Under this system every transaction has two aspects i.e. debit aspect and credit aspect. Under this system every transaction is entered into atleast two accounts in the Ledger. In one account the transaction is entered on the Left hand side i.e on the debit sideof the account and on the other account an entry for equal amount is made on the right side of the account i.e. the credit side of the account.
For example suppose X paid cash salaries to his staff. The two accounts affected are cash account and salaries account. As cash is going out it, cash account is credited. Salaries is an expenditure for the business, salaries account is debited.
Again X bought raw material for the production unit, the two accounts involved are
Cash account and Purchases account.
He paid carriage to bring goods to his factory, the two accounts involved are cash account and carriage account.
He sold finished goods to customers on credit, the two accounts involved are the customer's personal account(debtor) and sales account.
He further purchased furniture for his office on credit. The two accounts involved are furniture account and the personal account of the seller(creditor).
Thus we can see that every transaction has two aspects in the Double entry system of accountancy.
Now which account is debited and which is to be credited depends on the types of accounts involved and the rules of debit and credit for that type of account.
Under this system of accounting, every transaction in business involves atleast two accounts. That is why this system of accounting is called the ' Double Entry System'. Under this system every transaction has two aspects i.e. debit aspect and credit aspect. Under this system every transaction is entered into atleast two accounts in the Ledger. In one account the transaction is entered on the Left hand side i.e on the debit sideof the account and on the other account an entry for equal amount is made on the right side of the account i.e. the credit side of the account.
For example suppose X paid cash salaries to his staff. The two accounts affected are cash account and salaries account. As cash is going out it, cash account is credited. Salaries is an expenditure for the business, salaries account is debited.
Again X bought raw material for the production unit, the two accounts involved are
Cash account and Purchases account.
He paid carriage to bring goods to his factory, the two accounts involved are cash account and carriage account.
He sold finished goods to customers on credit, the two accounts involved are the customer's personal account(debtor) and sales account.
He further purchased furniture for his office on credit. The two accounts involved are furniture account and the personal account of the seller(creditor).
Thus we can see that every transaction has two aspects in the Double entry system of accountancy.
Now which account is debited and which is to be credited depends on the types of accounts involved and the rules of debit and credit for that type of account.
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