Characteristics of Double Entry

Characteristics of Double Entry

In this article we would discuss some important characteristics of double entry system. These characteristics discussed in term of standard rules, built in controls, skills requirements, suitability for large scale business, and high cost etc.

Double entry system records the dual aspect of each transaction in term of debit and credit. This dual aspect has been explained in detail in my other article (Rules of debit & credit). Recording of dual aspect is a main characteristics of double entry system.

Important Characteristics of Double Entry System

Some important characteristics of double entry system have been briefly discussed below;

1.   Standard Rules:

Double entry system follows standard rules of debit & credit. These rules of debit & credit are also known as languages of the business. These rules have been explained in my other article.

2.   Accurate Reporting:

Accurate Financial reporting is an important characteristic of double entry system and for this very reason; the double entry system is preferred by the business community over the single entry system.

3.   Built in Controls:

In Double entry system, there are some built in controls for detection of mistakes and frauds. However, double entry system does not detect all mistakes and only those mistakes which have single side effect are detected by the double entry system. Error detection has been explained in more details in my other article i.e. Accounting errors.

4.   Skills Required:

Double entry system can only be maintained by professional accountant, who has sound knowledge of accounting and this system cannot be operated by a person, who does not posses a formal accounting qualification .

5.   Suitable for Large Business:

Double entry system is the only solution for large scale business due to high level of accuracy, standard rules for operation, and strong built in controls. Where single entry system is preferred by small scale businesses mainly due to low cost.

6.   High Cost System:

Double entry system involves a lot of costs like finance manager salary, accounting software, stationary & books. In manual system there is no cost of software, where in computerized system, there is no cost for books.

7.   List of Characteristics of Double Entry System

Some important characteristics of double entry system are listed below

a.    Work under standard rules of debit & credit.

b.    Accurately calculate the profit & loss and financial position  of business.

c.    Mistakes & Fraud detection is possible.

d.    Strong built in controls.

e.    Costly system as compared to single entry system.