The double entry method and five accounting principles

Double entry accounting : The double entry method and five accounting principles

First established in the city of Venice in 1491, double entry bookkeeping is one of the fundamental methods used by accountants that requires all financial transactions of a company to be recorded in at least two of its general ledger accounts.

In a double entry system, all transactions are recorded as debits and credits. It is essential that all debits and credits have an equal sum in double entry accounting.

Debits are  always displayed on the left and  credits are always  displayed on the right of an account ledger. Debits are not always associated with increases in financial statements and credits are not always associated with decreases.

There are many benefits to using double entry bookkeeping in a business setting.

Five accounting principles: The double entry method and five accounting principles

Accounting principles are rules and standards that companies must follow when reporting their financial data. 

There are many principles in the accounting world, but we will only discuss five in today’s article:

• Principle of full disclosure:  this principle states that all essential information that could affect the reader’s understanding of financial documents should be included, resulting in a large amount of paperwork that must justify the financial decisions that the company in question has made .
• Principle of monetary unit: it  is the general assumption that money itself is considered a unit of measurement. Non-quantifiable items such as quality of customer service, employee skill level, experience management, and employee motivation cannot be measured in currency and are excluded from financial reporting.
• Revenue recognition principle: according to this principle, revenue is only recognized when it is realized or accrued and not necessarily when it is received, which means that the services or goods have been delivered and accepted by the client, but the payment will be received at a later time.
• Beginning of the accounting period: Companies should record their financial statements appropriately for a specific period of time, such as a quarter, a semester, or a year.
• Expense recognition principle  : expenses must be recognized in the same period as the income to which they are related. If this principle were not put into practice, the costs would be recognized as incurred and would follow the period in which the amount of revenue in question is recognized.The double entry method and five accounting principles