Tuesday, March 5, 2019

UNDERSTANDING FINANCIAL ACCOUNTING VOLUME 1


DOUBLE ENTRY PRINCIPLE

The double entry principle is methods of record- keeping by which at least two effect of each transaction are recorded. The purpose of the double entry principle is to bring out clearly the dual effects of transactions to an entity. The fundamental principle states that “for every debit entry there must be a corresponding credit entry and vice-versa”.

The treatise described double-entry bookkeeping - that for every credit entered into a ledger there must be a debit, a concept created by Florentine merchants and hailed by Goethe as "one of the most beautiful discoveries of the human spirit."
Luca Pacioli (1447-1517), Franciscan monk and mathematician, published Summa de Arithmetica, Geometrica, Proportioni et Proportionalite in 1494. It was a summary of existing mathematical knowledge of the time and contained a section on "Details of Accounting and Recording" that described bookkeeping as used in Venice.   

Pacioli's Summa was the first complete description of double entry bookkeeping. A memorandum book, journal, and ledger were required, with the journal and ledger similar to modern equivalents. A trial balance was used when the books were closed. The profit or loss was entered into the capital account to balance the balance sheet.
According to Luca Pacioli , the rules of double entry are:
i.        The keeping of books of accounts
ii.      The division of each book into separate accounts
iii.    Each account is divided into two halves, left hand side which is the debit side(Dr) and right hand side which is the credit side (Cr)
iv.    All transactions must be recorded in two accounts, one account is debited and another account is credited.
v.      The Giver (Giving account) is credited with the value of the items or goods and the Receiver (Receiving account) is debited with the same amount.
vi.    Each entry in the debit or credit must contain three things viz: the day of payment, the amount of payment and the reason for the entry.

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                                                  Patriot Odunaro B.J
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