Double Entry System And Transaction

Double entry system of book keeping is a scientific and complete system of recording the financial transactions of an organization. According to this system, every transaction has a two fold effect.

Principles of double entry system

Following are the principles of double entry system:

In every business transaction, there are two aspects.
The two aspects involved are the benefit or value receiving aspect and benefit or value giving aspect.
These two aspects involve minimum two accounts; at least one debit and at least one credit.
For every debit, there is a corresponding and equivalent credit. If one account is debited the other account must be credited.

Advantages of double entry system

Following are the advantages of double entry system:

Accuracy
Ascertainment of business results
Comparative study
Common acceptance

Transaction

Transaction can be classified into cash transaction, bank transaction and credit transaction.

Cash transaction

When immediate cash is involved in a transaction, it is called cash transaction. For example, goods are sold for cash ` 5,000. In this case, cash ` 5,000 comes into the business and goods worth ` 5,000 go out of the business.

Bank transaction

In a transaction, if bank is involved, it is a bank transaction.

Cash deposited into the bank
Income of the business directly received by the bank
Receipts through Cash Deposit Machine (CDM)
Payment made by the customers of the business through debit card, credit card, net banking, National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), etc.
Cash withdrawn from the bank
Bank charges levied by the bank
Payments made by the bank as per standing instructions
Payments made by cheque
Payments made by the business through debit card, net banking, NEFT and RTGS

Credit transaction

When settlement is not made by cash or through bank immediately in a transaction, it is called credit transaction. For example, purchase of goods on credit for `3,000. In this case, goods worth `3,000 come into the business and a liability of creditors worth ` 3,000 arises.