Advantages and disadvantages of double entry bookkeeping
Advantages of the double entry system of accounting
The advantages of the double entry bookkeeping may be summed up as under:
- Under this system, each transaction is recorded with its twofold aspect, so the total of one side must be equal to the total of other side. This helps in proving the accuracy of records.
- Maximum information under this system can be obtained by the owner of the business and other interested parties.
- Under this system, each transaction of revenue and expenses are recorded so correct information regarding income or losses can be had.
- The financial position of the business on any day can be had.
- There are lesser chances of errors, if it is committed, it can be located easily.
- It reflects the comprehensive record of business.
- Arithmetical accuracy of business can be ascertained.
- The profit earned or loss beard for any particular period can be calculated.
- This system can be adopted by any type of organization.
- All the amounts which are receivable or payable can be ascertained.
- The transaction relating to external or internal nature can be easily dealt.
- As the previous year’s financial statements are available, their comparative
analysis with current year’s financial statements become easy.
- By using double entry bookkeeping the value of cash in hand can be ascertained at any
- It helps in making managerial decisions.
Disadvantages of double entry bookkeeping
- Under double entry bookkeeping inflation cannot be handled as money is an inflexible unit of measurement.
- If any event which cannot be expressed in terms of money, will not be recorded.
- Sometimes it becomes very different to locate error if the wrong amount is entered in the record.
- This system is dependent on the personal judgment of accountant which can be inconsistent and biased.
- To maintain double entry bookkeeping is a very time consuming and hectic job, therefore, it is not suitable for small businesses where the owner is himself looking after all the affairs of business.