The principle of double entry is the foundation for all accounting records. This system is based on the principle of duality; that is, every economic event has two aspects: effort and reward, sacrifice and benefit, source and use.
These two aspects balance each other. This principle determines that each transaction must be recorded with at least one debit and one credit, and the total amount of the debits must be equal to the total amount of the credits.
Thus, regardless of how sophisticated they are, all accounting systems are based on the principle of double entry.
History of
This principle has been known for more than 500 years. In 1494, Luca Pacioli, a Franciscan friar and mathematician, published his work The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality.
It contained the details of an accounting system that included the principle of double entry as its central element. This was an accounting system that was used extensively by Venetian merchants during the Italian Renaissance period of the 15th century.
This system has remained in force to this day. Despite its apparent simplicity, it has been praised by many. For example, the German poet and playwright Goethe described it as one of the greatest discoveries of the human intellect.
For his part, the economist and sociologist Werner Sombart equated it, at least in spirit, with Galileo's and Newton's systems.
Basis of the accounting record
This system requires people to carry out a debit and credit transaction in two separate accounts. This offers many benefits to organizations.
On the one hand, it allows the accounting department to prepare reports and financial statements more easily. With this, the financial health of the company can be evaluated and financial ratios calculated for further analysis.
Likewise, it accommodates the recording of assets and liabilities, taking advantage of the accounting equation in which assets are liabilities plus equity.
With the register of assets, liabilities and equity a balance sheet is prepared. A balance sheet is an important financial statement within a company because it shows the resources owned by the company and the financial obligations owed by the company.
Plus, it prevents fraud by providing checks and balances that prevent fraudulent activity and reduce errors.
This happens because you can easily detect account manipulation by examining the journal entries and comparing them with previous journal entries for the same or similar transactions.
Now, there is another method called simple entry accounting. This has proven to be efficient when organizations are very small or are micro businesses.
It consists of maintaining only cash accounts and personal accounts, but not subsidiary books. Strictly speaking, it is not a simple starting record. Actually, it is the same process followed by the double entry principle, but incomplete.
References
- Needles, BE, Powers, M. and. Crosson, SV (2010). Principles of accounting. Ohio: Cengage Learning.
- Baskerville, P. (2011). What is the double-entry bookkeeping system? Saylor organization. Recovered from saylor.org.
- Needles, BE and Powers, M. (2010). Financial accounting. Ohio: Cengage Learning.
- Johnson, R. (s / f). Benefits of Double-Entry Accounting. Recovered from smallbusiness.chron.com.
- Wherry, FF and Schor, JB (2015). The SAGE Encyclopedia of Economics and Society. California: SAGE Publications.
- Rajasekaran, V. and Lalitha, R. (2011). Financial Accounting. Delhi: Pearson Education.