Principles Of Double Entry


Double entry accounting is a fundamental concept in financial accounting that ensures every transaction affects at least two accounts. This system is based on the principle that for every debit, there must be an equal and corresponding credit, maintaining the fundamental accounting equation of assets equal liabilities plus equity.

One of the key objectives of understanding the principles of double entry is to relate source documents to the various books of original entry. Source documents serve as evidence of a transaction and include invoices, receipts, vouchers, and bank statements. By properly identifying and analyzing these source documents, accountants can accurately record transactions in the respective books of original entry.

Understanding the effect of changes in elements of the accounting equation is crucial in applying double entry principles. Any transaction that impacts one element of the accounting equation will have an equal and opposite effect on another element to maintain balance. For example, an increase in assets must be accompanied by an increase in either liabilities or equity.

The role of double entry extends to posting transactions into various divisions of the ledger. The ledger contains individual accounts for each specific asset, liability, equity, revenue, and expense. By following the double entry system, transactions are recorded in the appropriate ledger accounts to maintain accurate and up-to-date financial records.

As part of the double entry process, accounts need to be balanced periodically to ensure their accuracy. Balancing off ledger accounts involves calculating the total debit and credit entries in each account and making adjustments to ensure they are equal. This process helps in identifying any discrepancies or errors in the accounting records.

Extracting a trial balance is another essential aspect of applying the principles of double entry. The trial balance is a list of all the accounts and their respective balances to ensure that the total debits equal the total credits. It acts as a preliminary step in the preparation of financial statements and aids in detecting any errors in the ledger accounts.

Identifying various types of errors and their necessary corrections is a vital skill in double entry accounting. Errors such as transposition errors, omission of entries, or incorrect postings can impact the accuracy of financial reports. By understanding common types of errors, accountants can take corrective actions to rectify the mistakes and maintain the integrity of the financial data.

In cases where errors cannot be immediately rectified, a suspense account can be utilized to temporarily hold the difference until a thorough investigation is conducted. The suspense account helps in balancing the accounting records by offsetting the discrepancies, ensuring that the trial balance remains correct until the errors are identified and corrected.


  1. Explain The Principles Of Double Entry Accounting
  2. Identify The Concept Of Double Entry
  3. Apply Double Entry Principles To Transactions
  4. Examine The Importance Of Double Entry Accounting In Maintaining Financial Records
  5. Understand The Relationship Between Debits And Credits In Double Entry System
  6. Analyze How Double Entry System Helps In Ensuring Accuracy And Integrity Of Financial Information

Lesson Note

The double entry accounting system is a cornerstone of modern financial accounting. Developed over centuries, this system provides a robust framework for recording financial transactions accurately and systematically. By understanding and applying the principles of double entry accounting, individuals and businesses can maintain accurate and balanced financial records.

Lesson Evaluation

Congratulations on completing the lesson on Principles Of Double Entry. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

  1. What is the fundamental principle of double entry accounting? A. Debit what comes in, credit what goes out B. Debit the receiver, credit the giver C. Debit expenses, credit revenues D. Debit assets, credit liabilities Answer: B. Debit the receiver, credit the giver
  2. In double entry accounting, which accounts are affected by a business transaction? A. One account B. Two accounts C. Three accounts D. Four accounts Answer: B. Two accounts
  3. Which financial statement is prepared based on the principle of double entry accounting? A. Income Statement B. Balance Sheet C. Cash Flow Statement D. Statement of Changes in Equity Answer: B. Balance Sheet
  4. How do you record an increase in an asset account using double entry accounting? A. Debit the asset account B. Credit the asset account C. Debit the liability account D. Credit the liability account Answer: A. Debit the asset account
  5. When a business pays off a loan, how is the transaction recorded in double entry accounting? A. Debit the loan payable account, credit cash account B. Credit the loan payable account, debit cash account C. Debit the loan payable account, debit cash account D. Credit the loan payable account, credit cash account Answer: A. Debit the loan payable account, credit cash account
  6. Which of the following is a key advantage of double entry accounting? A. Simplicity B. Accuracy C. Speed D. Subjectivity Answer: B. Accuracy
  7. In double entry accounting, what does the accounting equation (Assets = Liabilities + Equity) represent? A. Dual aspect concept B. Monetary unit concept C. Business entity concept D. Going concern concept Answer: A. Dual aspect concept
  8. If a business records a sale on credit, which accounts are affected in double entry accounting? A. Accounts Receivable and Cash B. Revenue and Cash C. Sales and Accounts Receivable D. Revenue and Accounts Receivable Answer: D. Revenue and Accounts Receivable
  9. What is the purpose of the trial balance in double entry accounting? A. To ensure all transactions are recorded accurately B. To calculate the net income of the business C. To prepare financial statements D. To verify the bank balance Answer: A. To ensure all transactions are recorded accurately

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Past Questions

Wondering what past questions for this topic looks like? Here are a number of questions about Principles Of Double Entry from previous years

Question 1 Report

Calculate the value of credit sales

Question 1 Report

Subscription in advance is treated in the balance sheet under

Practice a number of Principles Of Double Entry past questions