Tuesday, January 4, 2011

Purpose of Accounting and What is a Double Entry System?

What is Accounting
In business, we sell and buy lots of goods and these sell and buy cost, we writes in accounting books. To written these entries in accounting book are called accounting.

Importance of Accounting

  • Work as a profit
  • As a Result
  • For decision making

What is a Double Entry System?
In every business when we buy or sell goods, we see in each transaction there will be two entries: one is Debit entry and other one is Credit entry. When anything coming in business we used Debit side entry and anything going from business we used credit side entry. So both transition mean debit and credit are recorded together with equal amount is Know as Double entry system.

John purchased goods in cash and cost of goods is $750000.
We see that goods are coming in business and cash is going. So goods should be written in debit side and cash should be write in credit side and this transition in Double entry system will be written as follows:

Advantages of Double Entry System
  1. Correct calculation so there will no error
  2. Easy to check profit and loss in business then owner take decision according to that.
  3. Transitions of any entry, we can find in few minutes
  4. Money Owed by debtors and creditors, we can check in minutes.
  5. Time saving
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