1) To keep systematic records: Accounting is done to keep a systematic record of financial transaction. In the absence of transaction there would have been terrific burden on human memory which in most cases would have been impossible to bear.
2) To protect business properties: accounting provides protection to business properties from unjustified and unwarranted use. This is possible on account of accounting supplying the following information to the manager or the proprietor:
i. The amount of the proprietors’ funds invested in the business.
ii. How much the business has to recover from other’s?
iii. How much the business has to pay to others?
How much the business has in form of fixed assets, cash in hand, stock of raw material, cash at bank, stock of raw material
DOUBLE ENTRY SYSTEM:
The double entry system of bookkeeping owes its origin to an Italian merchant named Lucas Pacioli who wrote the first book on double entry bookkeeping entitled "Decomputis et Scripturis". It was published in Venice in 1544. All modern methods of accounting are simply adaptation of the system invented by that ancient pioneer.
Definition and Explanation:
The double entry theory of bookkeeping can be defined as the system of recording transactions having two fundamental aspects - one involving the receiving of a benefit and the other to giving the benefit - in the same set of books.
In this theory, as the two fold aspects of each transaction are recorded, the name "double entry" has been given to this system.
Every transaction involves two fold aspects e.g., an aspect of receiving and an aspect of giving. One who receives is a debtor (Dr) and one who gives is a creditor (Cr). Under the double entry system, both the aspects of giving and receiving are recorded in terms of accounts. The account which receives the benefit is debited and the account which gives the benefit is credited. It is the ultimate result of this system... [continues]
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