Advantages and Disadvantages of Double Entry Bookkeeping
Advantages of Double Entry Bookkeeping
The advantages of double entry bookkeeping include the following:
- Each transaction is recorded with its twofold aspects, so the total of one side must be equal to the total of the other side. This helps to improve the accuracy of records.
- Maximum information can be obtained by the owner of the business and other interested parties.
- Each transaction of revenue and expenses is recorded, ensuring that the correct information regarding income and losses is provided.
- Indicates the financial position of the business on any day.
- Minimizes the chance of errors and, if they are committed, they can be located easily.
- Serves as a comprehensive record of the business.
- Ensures the arithmetical accuracy of the books of account.
- The profit earned or loss sustained for any particular period can be calculated.
- It is possible for any organization to use the double entry system.
- Shows all the amounts receivable or payable.
- Easy to deal with transactions of an external or internal nature.
- As the previous year’s financial statements are available, their comparative
analysis with the current year’s financial statements becomes easy.
- Shows the value of cash in hand at any time.
- Assists managerial decision-making.
Disadvantages of Double Entry Bookkeeping
The disadvantages of double entry bookkeeping are listed as follows:
- Inflation cannot be handled as money is an inflexible unit of measurement.
- Any events that cannot be expressed in terms of money are not recorded.
- It is sometimes difficult to find errors if the wrong amount is entered in the record.
- The system depends on an accountant’s personal judgment, which may be inconsistent or biased.
- Time-consuming and complex to maintain, meaning that it is unsuitable for small businesses (especially those where only the business owner manages the business).