In this article we will discuss about the advantages and disadvantages of double account system of accounting.
Advantages of Double Account System:
1. The Capital Account prepared under double account system is similar to a Cash Account. This account shows how much capital has been raised from the public and what portion of it has been spent on permanent assets. The utilisation of amount and cash balance can be known easily.
2. Replacement of assets becomes easy because creation of depreciation fund is compulsory and the invested amount of this fund provides the necessary amount for replacement of assets.
3. Revenue Account is concerned with operating activities and Net Revenue Account is concerned with non-operating activities. These operating and non-operating activities can be compared easily.
4. The standardised forms for the publication of accounts of public utility undertakings enable the preparation of various statistical returns in a speedy manner.
5. Comparison of floating assets and floating liabilities is easy as they are separately given in the General Balance Sheet. But it is not so in ordinary Balance Sheet.
Disadvantages of Double Account System:
1. The Balance Sheet, under Double Account System, does not give a correct picture of assets, because assets are shown at cost and not at the net value after deducting depreciation.
2. Preliminary expenses are recorded in Capital Account.
3. The double account system contains unnecessary details, which creates confusion.
4. The trading result is not disclosed in the Revenue Account as it does not include interest paid and interest received on loans and debentures.
5. Certain assets of short duration are taken into Capital Account, shown at cost price, even after they have been reduced to scrap value.