Why is the double entry principle the basis for any accounting record?

The double entry principle forms the basis for any accounting record. This system is based on the principle of duality; that is, each economic event has two aspects: effort and reward, sacrifice and benefit, source and use.

These two aspects are balanced. This principle determines that each transaction must be registered with at least one debit and one credit, and the total amount of the debts must equal the total amount of the credits.

So, regardless of how sophisticated they are, all accounting systems are based on the double entry principle.

History of the beginning of the double game

This principle has been known for more than 500 years. In 1494, Luca Pacioli, a Franciscan friar and mathematician, published his work The collected knowledge of arithmetic, geometry, proportion and proportionality .

He showed the details of an accounting system that included the double entry principle as its central element.

This was an accounting system that was widely used by Venetian traders during the Italian Renaissance period of the 15th century.

This system has remained in place until today. Despite its apparent simplicity, it was praised by many.

For example, the German poet and playwright Goethe described it as one of the greatest discoveries of the human intellect.

For his part, economist and sociologist Werner Sombart equates him, at least in spirit, with the system of Galileo and Newton.

Basis of the accounting record

This system requires people to make a debit and credit transaction in two separate accounts. This offers many benefits for organizations.

On the one hand, it allows the accounting department to prepare reports and financial statements more easily. With this, you can assess the company’s financial health and calculate the financial ratios for further analysis.

 

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Likewise, it allows the registration of assets and liabilities, taking advantage of the accounting equation in which the assets are liabilities plus equity.

With the registration of assets, liabilities and equity, a balance sheet is prepared. A balance sheet is an important financial statement within a company because it shows the resources owned by the company and the financial obligations owed by the company.

In addition, it prevents fraud by providing checks and balances that prevent fraudulent activity and reduce errors.

This is because you can easily detect account manipulation by examining manual journal entries and comparing them to previous journal entries for the same or similar transactions.

There is now another method called simple line accounting. This proved to be efficient when organizations are very small or in the case of micro-enterprises.

It consists of keeping only cash accounts and personal accounts, but not auxiliary books. Strictly speaking, it is not a simple starting record.

In reality, it is the same process followed by the principle of double starting, but incomplete.

 

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