Assignment No 3

Question 1:

Advantages/Merits of Double Entry System:

Following are the advantages of Double Entry System.

1. Complete System of Accounting

Double Entry as name describes this system records the both aspects i.e., Debit and Credit of
each transaction. So, it is a complete system of book keeping.

2. To know the Financial Position

In double entry system, a balance sheet is prepared at the end of a financial year, that helps
organizations to know the actual financial position of the business.

3. Helps making Decisions

As described earlier, the double entry system allows to prepare the balance sheet, that provides
the profit, loss and financial position of business firm. So, it helps the business management to take
appropriate decisions for best results in future.

4. Comparison of Results
Already describes that balance sheet is prepared to know the financial position of the
organization at the end of each year, that can also help in comparing the result with previous years,
and so to make the best future plan.

5. To obtain Profit or loss

Profit or loss can be determined by preparing the profit and loss account at the end of
accounting period.

6. Ensure Arithmetical Accuracy

Trial balance is prepared under double entry system. Therefore, it ensures the arithmetical
accuracy of accounting records.
7. Systematic and Scientific Method
Double entry book keeping is the scientific and systematic system of recording the financial
transactions of the business. It is guided by specific rules, principles and techniques.

8. Suitable for Large organizations

This system is most effective for organizations that work on large scale i.e., they use more resources
in any financial transaction.

Disadvantages of Double Entry System:

1. Complex System

Double entry book keeping is the very complex system of recording the financial transactions of
business. This system requires the complete knowledge of accounting to maintain the records in book of
accounting. For a normal person, this system is very complex.

2. Time and cost Consumption

This system of accounting requires more time to record the financial transactions in book of
accounts. It also demands more money from an organization to install and maintain the double entry
records.

3. Unsuitable for Small Firms

Double entry system is not suitable for organizations having limited resources and funds to manage
their business.

Question No 3:

Comparison Chart Between Single and Double Entry System

Terms Single Entry System Double Entry System

Meaning The system of accounting in The system of accounting in which every
 which only one sided entry is transaction affects two accounts simultaneously
required to record financial is known as double entry system.
transactions is known as Single
entry system.
Nature Simple Complex
Recording Type Incomplete Complete
Errors Hard to recognize Easily Recognizable
Ledger Personal and cash account Personal, Real and Nominal account
Preferable for Small Enterprises Big Enterprises
Preparation of Difficult Easy
financial
statement
Suitable for tax No Yes
purpose
Financial Cannot be ascertained easily Can be ascertained easily
Position