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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