There must be a double entry to complete any financial transaction, means debit should be always equal to credit. Hence, every financial transaction has its dual aspect:
● we get some benefit, and
● we pay some benefit.
For example, if we buy some stock, then it will have two effects:
● the value of stock will increase (get benefit for the same amount), and
● it will increase our liability in the form of creditors.
|
Transaction |
Effect |
|
Purchase of Stock for Rs 25,000 |
Stock will increase by Rs 25,000 (Increase in debit balance) Cash will decrease by Rs 25,000 (Decrease in debit balance) or Creditor will increase by Rs 25,000 (Increase in credit balance) |