Double Entry System Flashcards, test questions and answers

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What is Double Entry System?

A Double Entry System is a method of accounting in which each transaction is recorded in at least two different nominal ledger accounts. This system of recording transactions was introduced by the Italian mathematician Luca Pacioli during the Renaissance period and has been used ever since as the foundation for modern accounting. The double entry system provides an accurate and reliable record keeping process that helps to ensure that all financial transactions are accurately reported.The double entry system is based on two fundamental principles: every transaction must be recorded in two opposing entries and the total of both debit (assets) and credit (liabilities) entries must always equal zero. This means that when a business purchases something, it will record a debit to its assets account, while simultaneously recording a credit to its liabilities account, thus creating an overall balance between them. Thus, when entering data into any accounting software or spreadsheets, users should enter each transaction twice; once as a debit entry and then again as a credit entry.This type of systematic recording ensures accuracy and allows businesses to easily track all financial activity within their company or organization. By using this system, businesses can quickly identify discrepancies within their accounts which could lead to potential errors or fraud. The double entry system also allows users to view their financial position from different perspectives such as profit/loss statements and balance sheets which allow them to make more informed decisions about their businesses’ finances. Overall, the double entry system provides organizations with an efficient way of keeping accurate records of their financial activity while allowing them to gain insights into their finances from multiple perspectives which can help inform better decisions for running their operations.