Double Entry System
Double Entry System in accounting involves that every transaction consists two accounts, and transactions record in terms of debit and credit, for instance, a company ERP Gold start its business with cash, the cash will increase recorded as a debit and the capital will decrease recorded as a credit. If the company sales its ERP software with cash. The cash will increase and the sales account will decrease.
Double entry system permits accounting equation Assets=Liabilities +owner equity for the purpose to make the transactions balance. And give the rule is the receiver is debit and giver is credit.
Double Entry System Drives Following Advantages
Correctness:
Double entry system is a systematic method of recording financial transactions. You can maintain your record more accurately with double entry provided rules. Double entry system keeps the record balance from both sides, so accuracy is easy to ensure through it.
Easily Track Errors
Double entry system keeps both the aspects of a transaction so the errors occurred during recording and preparing financial statements may easily trace and remove.
Reliability:
Double entry system gives reliability in data to you. You can compare your one period result with another period
Support Well-informed Decision:
The main purpose of accounting is providing financial information to the decision makers Double entry system makes sure that all the relevant financial data entered and recorded in books of accounts. Once the data properly entered and record, you can prepare any financial report as per your requirement.
Specify Financial Position:
Double entry system provides important information for describing the financial position of the entity. It supports to prepare financial statements; through financial statements you can evaluate your company financial position.
Worldwide Acceptance
Double entry system follows the general accounting equation and accounting principal so it uses everywhere and its reports are accepted globally.
Disadvantages of Double entry system: The following may be considered as disadvantages
Comparatively Difficult to Understand.
Single entry system drives the method of recording one side information of recording accounting equation so sometimes double entry system feels that it is quite difficult to understand any transactions two effects in the same time.
Costly
Double entry system cost may be high if the company has different operation unit at different places, and need more employees to maintain the record of each department.
Time Consuming
As double entry system track the both effect of the accounts, every entry needs to enter twice and cross checked so it may take more time, you need more time to enter all the information recorded in the books of accounts , without complete information you cannot track errors.