Double Entry

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Double Entry Book Keeping System By: Prajwal Shetty

Introduction:

Introduction A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts. Each transaction was entered twice (double-entry), with one side of the transaction being called a debit and the other a credit.

Advantages:

Complete Record Arithmatic accuracy Correct finding of working results Uptodate Information Reliability of Accounts Advantages

Disadvantages:

It is a costly system because it involves elaborate books and work. It requires special Knowledge and Skills. Disadvantages

Approaches:

Traditional (British) approach Accounting equation approach Approaches

Traditional (British) approach:

We need to classify the accounts as Real A/c, Personal, Nominal etc. Transactions are entered in the books of accounts by applying the following golden rules of accounting: 1) Personal account: Debit the receiver and credit the giver 2) Real account: Debit what comes in and credit what goes out 3) Nominal account: Debit all expenses & losses and credit all incomes & gains Traditional (British) approach

Accounting equation approach:

This approach is also called the American approach. Under this approach transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital. The accounting equation is a statement of equality between the debits and the credits. The rules of debit and credit depend on the nature of an account. Accounting equation approach

The rules for Accounting equation approach:

Assets Accounts: debit increases in assets and credit decreases in assets Capital Account: credit increases in capital and debit decreases in capital Liabilities Accounts: credit increases in liabilities and debit decreases in liabilities Revenues or Incomes Accounts: credit increases in incomes and gains and debit decreases in incomes and gains Expenses or Losses Accounts: debit increases in expenses and losses and credit decreases in expenses and losses The rules for Accounting equation approach

Important Points of Entries:

Each financial transaction is recorded in at least two different nominal ledger accounts within the financial accounting system, so that the total debits equals the total credits in the General Ledger, i.e. the accounts balance. This is a partial check that each and every transaction has been correctly recorded. The transaction is recorded as a "debit entry" (Dr.) in one account, and a "credit entry" (Cr.) in a second account. The debit entry will be recorded on the debit side (left-hand side) of a General ledger and the credit entry will be recorded on the credit side (right-hand side) of a General ledger account. Important Points of Entries

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