Write short notes on: (iii) Double entry system

Double entry system may be defined as that system which recognizes and records both the aspects of a transaction. Every transaction has two aspects and according to this system, both the aspects are recorded. This system was developed in the 15th century in Italy by Luca Pacioli. It has proved to be systematic and has been found of great use for recording the financial affairs for all institutions requiring use of money. This system offers the under mentioned advantages: (a) By the use of this system, the accuracy of the accounting work can be established through the device of trial balance. (b) The profit earned or loss suffered during a period can be ascertained together with details. (c) The financial position of the firm or the institution concerned, can be ascertained at the end of each period, through preparation of the balance sheet. (d) The system permits accounts to be kept in as much detail as necessary and therefore, affords significant information for the purpose of control etc. (e) Result of one year may be compared with those of previous years and reasons for the change may be ascertained. It is because of these advantages that the double entry system has been used extensively in all countries.