Principles And Rules of Double Entry - SS1 Accounting Lesson Note
By following the principles and rules of double-entry bookkeeping, businesses can maintain accurate and reliable financial records, which are essential for making informed decisions and complying with regulatory requirements. The principles and rules of double-entry bookkeeping include:
-
Every financial transaction must be recorded in at least two different accounts, with each transaction having a debit and a credit entry. This is because for every debit entry, there must be a corresponding credit entry and vice versa.
The total amount of debits must always equal the total amount of credits. This is called the "accounting equation" and is expressed as Assets = Liabilities + Equity.
Debits and credits must be recorded in the correct accounts. For example, a payment received from a customer would be recorded as a debit entry in the cash account and a credit entry in the accounts receivable account.
The accounting records must be accurate and up-to-date. This involves ensuring that all transactions are recorded promptly and that the records are properly maintained and reviewed regularly.
The principle of consistency must be followed, which means that the same accounting methods and procedures must be used consistently over time to ensure that the financial records are reliable and comparable.
The principle of conservatism should also be applied, which means that when there are uncertainties or doubts about the value of an asset or the amount of liability, it is better to be conservative and record the lower value or amount.