Question

What role does double entry accounting have in checking internal and external financial data for consistency and accuracy?

Answer 1

Answer Double entry system playing most important role in preparing, presenting, and disclosing financial data of an organization. All data initially record in journal on the basis of double entry system. After that we prepare ledger, income statement, balance sheet. Double entry system play important role in accuracy and consistency of internal and external financial data of an organization. Following are the some example of this-

•          All financial data of an organization, which have monetary value records both side debit and credit side due to double entry system. This approach shows accurate financial data. Double entry system is based on accounting equation i.e. Assets= Capital+ liabilities. This accounting equation also helps to accountant to record financial data in financial statement accurately. Only due to double entry system Balance sheet both side always match with each other.

•          There is systematic approach for every accounting rule, regulation, in double entry system than single entry system. So accountant always try to use these appropriate method consistently. And due to double entry system, financial statement of an organization can be compare with other organization or other period financial statement when they are consistently using uniform accounting principle, concepts.

Double entry system helps to management to present financial statement true and fair.