Double Entry System of Financial Accounting

The Double entry system - the base of financial accounting, is not a modern system. The history and sequence of events resulting in double entry system dates back to 3000 BC. The Babylonians, Assyrians, Chaldeans and Sumerains showed signs of bookkeeping. Between 1122-256 BC accounting played a key role in China. The Chinese used systematic records for government transactions. Many other parts of the world had their own way of keeping records before the 14th century. The Lombards (rulers of Italy) introduced the method of double entry called as "Italian Book-Keeping". In 1494, Luca Pacioli, an Italian Merchant wrote a book, 'Summa de Arithmetica Geometria Proportioni et Proportionalita'. It had a chapter, De Computis et Scripturis which explained the double entry system of bookkeeping. According to him, the purpose of bookkeeping was to give the information to the businessman about his assets and liabilities. He described two aspects, Debit and Credit used for double entry bookkeeping. Since then, many changes have taken place in the system of bookkeeping but the basic idea i.e., two aspects of a transaction remains unchanged and continues to be the base for accounting.

According to the double entry system of accounting, every business transaction has two aspects, i.e., when we receive something, we give something else in return. For example, when we sell goods, we receive cash. Thus, for every debit there is always a corresponding credit and vice versa. According to double entry system, the total of all debits must always be equal to the total of all credits.

Bookkeeping is both an art and science of recording business transactions in a systematic manner by using double entry system of accounting. The information is recorded in such way that it is quickly available to the users at any time. The bookkeeper is responsible for maintaining all accounting records. His job is clerical in nature and routine. These days, however, most of bookkeeping is mechanized and electronic.

 The accountant must review the work of the bookkeeper. He must possess a high level of accounting knowledge, conceptual understanding and analytical skill than a bookkeeper. To some extent, the job of accountants can be mechanized like generating various reports but analysis and interpretation cannot be mechanized, because these two functions are non-routine and require personal skill.