A double entry system of accounting was devised with the concept that each transaction has dual effect. Two effects of each transaction are recorded on the basis of universally accepted debit and credit rules of accountancy. Double entry system is based on subsidiary records which are:

• Day books

1.    Sales day book
2.    Purchase day book
3.    Cash/bank day book

• Petty cash book

Day books are explanatory in nature and are used to record day to day transactions and are referred to as original entry books.

Double entry system as an instrument of recording dual effect of recording financial transactions which entails following steps into in its mechanism:

Chart of accounts – a catalog of accounts along with its unique identification. No account can be debited or credited without its enlistment in chart of account along with its unique code.


Journal – books of double entry based on debit credit rules. The dual effect of each transaction on the accounts is recorded in Journal through debiting and crediting the respective account as per its enlistment in chart of account.

Ledger – record of accounts posted from journal entries. Ledger is the movement of specific account during the accounting period clearly showing beginning and closing balances. Three types of ledgers are common. The first one is sales ledger to sales related transactions and deals with accounts receivables. The second is purchase ledger used to post purchase related transactions and deals with accounts payables. The third type is General Ledger representing assets, liabilities, equity, income, and expenses.

Trail Balance – a list of account balances taken from ledgers.