Advantages and Disadvantages of Double Entry System


Meaning of Double Entry System

Double entry is a system of accounting in which both debit and credit aspects of accounting are recorded. Every transaction has two aspects debit and credit. We record both debit & credit sides for every transaction.

For example: At the time of buying the assets Double Entry System records both debit and credit. We pass the receiving the assets entry on the debit side and payment of cash is recorded credit side.

Advantages and Disadvantages of Double Entry System
Advantages and Disadvantages of Double Entry System

Advantages of Double Entry System

  1. Double Entry System is Scientific System: This is a scientific system for recording business transactions as compared to a single entry. It helps to recheck and counter check the books of accounts.
  2. Double Entry System Record Complete Transactions: In this system, both sides of a transaction are recorded as debit and credit, so we record both purchase and payment in different accounts.
  3. Recheck the Accounts: In this system, the account is checked automatically when we pass an entry on both sides. If both sides of the trial balance are not matched we can easily find the mistake.
  4. Calculation of Profit or Loss: Profit and Loss Account provides information about the Profit earned or loss incurred during a period.
  5. Financial Position: The financial position of the business can be determined at the end of the year as we prepare profit and loss account & Balance Sheet.
  6. Comparison becomes Easy: We can compare the profit and loss account & Balance Sheet of any two or more years as we have the accounting books.
  7. Helps to Manager: Manager can take decisions on the basis of the financial condition of the business and make plans accordingly.
  8. Easily Frauds and Misappropriations: Frauds and misappropriations can be easily found as every transaction have two records.

Disadvantages of Double Entry System

  1. Complex in nature: Double-entry system is complex in nature as to take care of lots of rules and regulations of accounting standard & accounting principles.
  2. Time And Cost: It requires more time to maintain the accounting books so it involves more clerk which leads to an increase in cost.
  3. Not For Small Firms: Small firms can not hire a person who has proper knowledge of accounting as their charge is high.
  4. Expert knowledge: It requires expert knowledge of account to use the Double Entry System for book-keeping.
  5. Increase in book size: Every transaction needs to record in two places so the size of books will increase or who have data in electronic form need a more powerful computer to handle that data.