DR D DEEPA-Double Entry Book keeping.pptx

Double Entry Bookkeeping: A Comprehensive Overview

Introduction
Double entry bookkeeping is a systematic method of recording financial transactions where every entry has two effects: a debit in one account and an equal credit in another. This system ensures accuracy, reduces errors, and provides a complete financial picture of an entity. It forms the foundation of modern accounting and is essential for businesses, organizations, and financial institutions worldwide.

Historical Background
The concept of double entry bookkeeping dates back to the 15th century when Luca Pacioli, an Italian mathematician and Franciscan friar, documented the system in his book Summa de Arithmetica, Geometria, Proportioni et Proportionalita in 1494. This system revolutionized financial recording, allowing businesses to track income, expenses, assets, and liabilities more effectively.

Basic Principles of Double Entry Bookkeeping
Double entry bookkeeping is based on the following fundamental principles:

Dual Aspect Concept: Every financial transaction affects at least two accounts, ensuring that the accounting equation remains balanced.

Accounting Equation: The equation Assets = Liabilities + Equity must always be maintained.

Debit and Credit: Every transaction involves a debit entry in one account and an equal credit entry in another.

Recording Accuracy: Transactions are recorded in chronological order, reducing the chances of fraud and errors.

Key Components of Double Entry Bookkeeping

Accounts:

Assets: Resources owned by a business (e.g., cash, inventory, equipment).

Liabilities: Obligations or debts owed by a business (e.g., loans, accounts payable).

Equity: Owner’s claim on the business after liabilities are settled.

Revenue: Income earned from business operations.

Expenses: Costs incurred to generate revenue.

Journals: The first step in the accounting process, where transactions are initially recorded in chronological order.

Ledger Accounts: Summarized accounts where transactions from journals are posted, categorized into assets, liabilities, equity, revenue, and expenses.

Trial Balance: A report that ensures total debits equal total credits, verifying accuracy in the books.

Financial Statements:

Income Statement: Shows revenue and expenses over a period.

Balance Sheet: Displays assets, liabilities, and equity at a given time.

Cash Flow Statement: Tracks cash inflows and outflows.

Rules of Debit and Credit
In double entry bookkeeping, transactions follow specific debit and credit rules:

Assets: Increase (Debit), Decrease (Credit)

Liabilities: Increase (Credit), Decrease (Debit)

Equity: Increase (Credit), Decrease (Debit)

Revenue: Increase (Credit), Decrease (Debit)

Expenses: Increase (Debit), Decrease (Credit)

Examples of Double Entry Transactions

Purchasing Equipment for Cash

Debit: Equipment Account (Increase in assets)

Credit: Cash Account (Decrease in assets)

Taking a Loan from a Bank

1. DR D DEEPA Assistant Professor Department o f Management Science - BBA Sri Ramakrishna College of Arts and Science Coimbatore - 641 006 Tamil Nadu, India 21CBM03– Financial Accounting UNIT - 1 Double Entry Book-Keeping 1

2. Double Entry Book-Keeping Sri Ramakrishna College of Arts and Science 2 Meaning: Double-entry bookkeeping is a method of recording transactions where for every business transaction, an entry is recorded in at least two accounts as a debit or credit. In a double-entry system, the amounts recorded as debits must be equal to the amounts recorded as credits.

3. Thank you 3