5 Disadvantages of Double Entry System

Under the double-entry system, there are two aspects of every transaction i.e. debit and credit. So, both aspects of each transaction are recorded. In this system, the transaction is recorded on the debit side and also on the credit side. For example, when goods are sold in cash this transaction involves two aspects i.e. cash is received and goods are sold. Thus, in the double-entry system cash account is debited and the sales account is credited. This system is based on the dual aspect principle of accounting that for each debit there must be a credit of equal amount. Following are some disadvantages of the Double Entry System

Disadvantages of Double Entry System

Based on historical cost: Accounting records that are maintained under this system of accounting are based on historical records. Thus, it ignores the effect of inflation and it cannot be ascertained that whether accounts prepared present the true and fair view of business or not.

Difficulty in the detection of errors: Double entry system minimizes the errors in the accounting records. But, since the records are maintained by humans, there’s a possibility that an error may occur i.e. when a transaction is wrongly recorded in the books. Thus, it becomes difficult to detect such errors under this technique of accounting.

Demands specialized knowledge of accounting: Double entry system requires specialized knowledge of accounting for the preparation of accounting records properly.

Unsuitable for small businesses: An accountant having specialized knowledge is required for recording transactions on a double-entry basis. So, it becomes difficult for little businesses or sole proprietors to take care of the records according to the double-entry system.

Influenced by personal judgments: Sometimes the accounting records maintained under this system of accounting are influenced by personal judgment i.e. accounts are manipulated to point out a far better financial position of a business and not the actual position

Also, Read Meaning of BookKeeping

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