Double Entry System: An Accounting Paradox?

📌 CONCEPT: The double entry system is an accounting principle that records each financial transaction as two or more entries in the accounting records, ensuring a balanced and accurate financial position.

📐 RULE / FORMULA: The fundamental principle of the double entry system is that every transaction affects at least two accounts, and the debit and credit entries must be equal in value but opposite in nature (Debit = Credit).

💡 WORKED EXAMPLE: Sohan buys goods worth Rs 10,000 and sells goods worth Rs 12,000. The accounting entries would be: Debit Purchases A/c Rs 10,000, Credit Cash A/c Rs 10,000 (purchase) and Debit Cash A/c Rs 12,000, Credit Sales A/c Rs 12,000 (sale). The balancing effect is maintained as the total debit and total credit entries are equal.

⚠️ COMMON MISTAKE: Students often forget to maintain the equality between total debit and total credit entries, resulting in an unbalanced accounting record.