Double Entry System [Jan. 2025, 5 Marks]
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C
D
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Accounting ProcessQuestion 4659 of 84
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Detailed Solution & Explanation
Double Entry System:
This system was invented by an Italian merchant named Fra Luca Pacioli in 1494 A.D.
According to this system, every transaction has got a two-fold aspect (dual aspect),
i.e., one party giving the benefit and the other receiving the benefit and it has effect of
opposite nature on two financial items.
Information of one financial nature at one place is known as an account which is
divided into two sides, debit and credit.
In short, one account is to be debited and another account is to be credited for every
transaction in order to have a complete record of the same.
Therefore, every transaction affects two accounts in opposite direction.
For example, if goods are sold to Mr. A on credit, the same will affect goods/ sales
account and A's account and entries will be made in opposite direction in these two
accounts.
This system is called Double Entry System since it keeps records for every transaction
in two accounts.
Therefore, the basic principle, under this system, is that for every debit there must be
a corresponding credit or vice versa.
Before going to discuss the double entry principle it becomes necessary to explain
certain terms which are frequently used in accounting. They are discussed in later
questions.
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