QUESTION 43. What are the advantages of Double entry system ?
ANSWER 43. ADVANTAGES OF DOUBLE ENTRY SYSTEM :
1. HELPFUL IN PREPARING TRIAL BALANCE : There is a debit for every credit and a credit for every debit , which helps in making trial balance which help in checking the arithmetical accuracy of accounts.
2. HELPFUL IN PREPARING PROFIT AND LOSS A/C : By the help of trial balance trading, Profit and Loss Account can be made which help to ascertain the exact earned by the business during a financial year.
3. PREPARATION OF BALANCE SHEET : Every information needed for preparing Balance sheet is made available by this system and by making a Balance Sheet the real financial position of the business is easily known.
4. LESS POSSIBILITIES OF ERRORS AND MISAPPROPRIATIONS : This system gives very less scope for errors , misappropriations and frauds because fraud can easily be detected by this system .
5. COMPARATIVE STUDY : It helps to do the comparative study of the accounts with the accounts of the previous years. Reasons can be known for any increase in expenses or less amount of sales etc.
6. PROFITS AND LOSS OF A BUSINESS IS ASCERTAINED : After making all the adjustment and provision for the year actual profit or loss is known for the current financial year.