Effectiveness of Double Entry Accounting System
Giving examples, evaluate the effectiveness of the controls in the double entry system of accounting in ensuring the accuracy of the accounts. As well as examining the controls, your evaluation should consider errors that do not affect the balancing of the trial balance.
Double entry accounting system was invented in 15th century and still being in use until today, this is quite an interesting fact; however it indicates that there is something about the system, thus making it so effective and irreplaceable.
To evaluate the effectiveness of the controls in the double entry system, we should first question ourselves why is double entry book keeping system is still being used until today. Double entry book keeping is very useful because it can help spotting a lot of errors that accountants make every day. The fact of the matter is, that every transaction is being entered twice, which can eliminate some of the errors, that otherwise could have been missed out. For example, an accountant has debited £1409 P.Vasiljev’s account instead of £1490, however because he had to credit the bank account as well, he looked at the transaction again, and spotted the error. Furthermore this system helps us to find errors using trial balance. As the trial balance will eventually be produced, it will identify whether or not, total of debit will equal to credit, if not, it indicates that errors has been made. Despite the fact, there are errors that double entry accounting will be unable to reveal, which will be shown below. (http://www.canhamrogers.com, 2011)
Complete Reversal of Entries
A payment of £16 to V.Putin, a supplier, was debited in the cash book and credited to V.Putin’s account.
Compensating Error
The bank account is under cast by £3000. The salaries account is also under casts by the same amount.
Error of Omission
The sale of products, £100 (plus VAT) to G. Bush, has been completely omitted from the books.
Error of Commission
A purchase of
Double entry accounting system was invented in 15th century and still being in use until today, this is quite an interesting fact; however it indicates that there is something about the system, thus making it so effective and irreplaceable.
To evaluate the effectiveness of the controls in the double entry system, we should first question ourselves why is double entry book keeping system is still being used until today. Double entry book keeping is very useful because it can help spotting a lot of errors that accountants make every day. The fact of the matter is, that every transaction is being entered twice, which can eliminate some of the errors, that otherwise could have been missed out. For example, an accountant has debited £1409 P.Vasiljev’s account instead of £1490, however because he had to credit the bank account as well, he looked at the transaction again, and spotted the error. Furthermore this system helps us to find errors using trial balance. As the trial balance will eventually be produced, it will identify whether or not, total of debit will equal to credit, if not, it indicates that errors has been made. Despite the fact, there are errors that double entry accounting will be unable to reveal, which will be shown below. (http://www.canhamrogers.com, 2011)
Complete Reversal of Entries
A payment of £16 to V.Putin, a supplier, was debited in the cash book and credited to V.Putin’s account.
Compensating Error
The bank account is under cast by £3000. The salaries account is also under casts by the same amount.
Error of Omission
The sale of products, £100 (plus VAT) to G. Bush, has been completely omitted from the books.
Error of Commission
A purchase of