Double Entry System [Jan. 2025, 5 Marks]

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Answer Solution: 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.

Double Entry System [Jan. 2025, 5 Marks]

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