1. Write the meaning of double entry system.
Ans:-Double entry system is modern and scientific system of recording the financial transactions. In account the process of recording the financial transaction showing its dual effect is known as double entry system of book-keeping. Accounting to this system every debit has a corresponding credit and the totals of debit equals to total of credit.
2. State any three features of double entry system.
Ans:-Any two features of double entry system.
a. Double effect:-Double entry system assumes that every financial transaction affect two sides which are described as the debit and the credit.
b. Equal effect:-According to the concept of double entry system the debit and credit sides are influenced by equal amount.
c. Scientific system:-Double entry system is scientific system because it is based on various principles, conventions and assumptions.
3. Write any three advantages/importance/objectives of double entry system.
Ans:-The following are the three objectives of double entry system:
a. To keep complete records of every financial transactions systematically and scientifically.
b. To ascertain the profit or loss of the organization.
c. To provide real picture about the financial position of the organization.
4. Write the meaning of accounting equation.
Ans:-Accounting equation shows that assets of a business are always equal to the total of its capital and liabilities.
Here, Assets = Capital + Liabilities, this equation is called Accounting equation.
Differentiate between Single entry book-keeping system and Double entry book-keeping system. [V.Imp]
Accounting cycle / Accounting process / Process of accounting
Accounting is continuous process. It is a complete sequence of accounting activities. It starts from the primary entry of transaction in journal and ends with the preparation of financial statements and communicating them to the users.
Steps of Accounting cycle:
a. Identification of financial transactions:
Those transactions which con be measured in terms of money or money’s worth are called financial transaction. The primary function or process of accounting is to identify those transaction which are financial in nature.
b. Recording of financial information:
After identifying the financial transactions, the next step in accounting process is to record those transactions in the book called journal and subsidiary book. The subsidiaries books are purchase book, sales book. purchase return book, sales return back, cash book etc
c. Classification of financial information:
The third step of accounting cycle is to sort out the recorded data. The sorting of data is also known as classification. It involves the activities of posting recorded financial transactions of journal into different ledger accounts like purchase account, soles account, creditors account etc. In order to know the net effects of transactions separately classification of financial transactions are done by maintaining preparing personal account, real account and nominal account in personal ledger, real ledger and nominal ledger.
d. Summarizing financial information:
After preparing different ledger accounts, a summary called trial balance is prepared to check the arithmetic accuracy of ledger accounts. Summarizing is actually made by preparing financial statement like trading account, profit and loss account and balance sheet.
e. Analysis and interpretation of financial statements:
After summarizing the data found in trading account, Profit and loss account and balance sheet are analyzed to draw conclusion about the profitability condition and financial position of the business.
f. Communicating financial information:
The last step to accounting process/accounting cycle is to communicate financial information such as profit or loss and financial position of the business as well as interpreted report of interpreter to different user like management, owners, employees, creditors, debtors, tax authorities and other stake holders.