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Double Entry System

Debit equalized Credit
     Every credit has its equaling and corresponding debit in double entry system. Every transaction or event has two accounts in double entry system. One transaction is split into debit and credit accounts and then recorded in dual aspect concept by following golden rules. All debit accounts are matched and tallied with all credit accounts then only the accuracy of accounts are ascertained and accounting process is completed.
     Luca (friar) pacioli emphasized that a person should not sleep at night unlit the debit equalized the credit. The primary rule of double entry system is every debit has equal amount of credit.
    Under double entry system, accounts are categoriesed into five type, as per equation approach of double entry system. They are assets, liabilities, capital, incomes, and expenses. An equation is formed to compare the debit account with credit accounts. So all debit accounts are compared and matched with all credit accounts.
Assets = Liabilities + [Capital+ incomes- expenses]
Simply,
Assets = Liabilities + Capital
     Under double entry system, accounts are classified into three types as per traditional approach of double entry system. They are personal, Real, Nominal Accounts. Personal accounts include all persons dealing with business. Real accounts include all assets owned by business. Nominal accounts are all incomes and expenses of business.
    All assets are matched with all liabilities and capital in Balance Sheet. The nominal accounts are closed by preparing the profit and loss account and transferring the resulted profit or loss to capital accounts. Therefore finally all assets are tallied with all liabilities. So every debit accounts are having its equaling credit accounts.
     Analysis of Transactions
          One transaction has two folds or aspects. One is receiving aspect or debit aspect and another one is giving aspect or credit aspect. This aspect is interpreted as accounts in books of accounts in double entry system to record them meaningfully, understandably. The accounts are classified as personal, Real, Nominal accounts. By following the dual aspect concept i.e. receiving aspect and giving aspect, Golden Rules are framed for the three classified accounts. By adopting the golden rules, transactions are recorded in the books of accounts.

         One transaction is reflected in two accounts. One account is debited and another account is credited by following golden rules. Golden Rules are like popular the universal truth “sun rises in east and sets in the west”. It is to be memorized and followed constantly. It is predetermined rules which are followed universally in accountancy.

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