Question

Discuss the origins of the double-entry bookkeeping. (300-400 words please and no copy paste/ also quote references)

Answer 1

A double-entry accounting system is a system of accounting that records the effects of transactions (i.e increases and decreases in accounts) and other events in at least two accounts with equal debits and credits. Double-entry bookkeeping first emerged in Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest.

Financial statements are summaries of the individual transactions that take place throughout the course of doing business. Double-Entry accounting is a system for recording transactions based on recording increases and decreases in accounts so that debits always equal credits. The basic rule underlying the double-entry system of accounting is as follows: Rule: DEBITS = CREDITS.

Double-entry because it is easier to keep track of asset and liability accounts. Advantages that double-entry bookkeeping has over single-entry bookkeeping are that the organisations can accurately calculate profit and loss and financial statements can be prepared directly from the books, and errors are easier to detect

The double entry system of accounting or bookkeeping means that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company’s Cash account will increase and its liability account Loans Payable will increase. If a company pays $200 for an advertisement, its Cash account will decrease and its account Advertising Expense will increase.

Double entry also allows for the accounting equation (assets = liabilities + owner’s equity) to always be in balance. In our example involving Advertising Expense, the accounting equation remained in balance because expenses cause owner’s equity to decrease. In that example, the asset Cash decreased and the owner’s capital account within owner’s equity also decreased

Double-entry book-keeping system keeps a detailed record of financial transactions. Therefore, the recording of financial transactions in books provides necessary information for the purpose of costs control. Double-entry book-keeping system communicates financial information that is necessary for taking decisions by a business. Double-entry book-keeping system also provides necessary information to different users such as owners, managers and creditors for their decision making purposes