Objects And Components Of Double Account System:

Double account system consisting of the two major accounts - debit and creditis that are usually invovled in all accounting processes as a system of presenting final account of an organization. Under the double account system, the amount of capital raised and its portion spent on permanent assets are shown separately. As because under this system, such assets are to be maintained out of revenue.

Objects of Double Account System:
  1. To extend information about amount spent on fixed assets and the sources from which the same has been obtained should be disclosed clearly.
  2. To see that the permanent assets are always kept intact in the books of accounts and are maintained out of the revenue generated. The Double Account System requires that the permanent assets acquired and once raised in the books are not depreciated or eliminated.

In order to achieve these two objectives, the Double Account System was developed.

Components Of Final Account Under Double Account System:

The final account under double account system consists of:-

  1. Revenue Account
  2. Net Revenue Account
  3. Capital Account
  4. General Balance Sheet
1. Revenue Account:

The revenue Account is like Profit And Loss of a concern prepared under single Entry System. The incomes are entered on the credit side and expenses on the debit side.

2. Net Revenue Account:

This account is like the Profit And Loss Appropriations Account prepared under single Entry System and shows the appropriation of profit. The balance of revenue Account is transferred to the Net Revenue Account whose balance after necessary adjustments is finally transferred to the General Balance sheet.

3. Capital Account:

It is a part of a balance sheet and shows capital receipts and capital expenditures. The credit side of the account shows capital receipts (capital raised by issue of shares debentures, etc) and the debit side of this account shows capital expenditures (amount spent on acquisition or addition of fixed assets)

Here it is to be noted that:

  1. The preliminary expenses (amount spent of the formation of undertaking) are shown on the debit side of the capital account
  2. Premium on issue of shares and debentures is treated as capital receipts and is shown on the credit side of the account
  3. Discount on issue of shares and debentures, as a rule is deducted from the gross proceeds from the issue and after making the required deduction, the net proceeds are shown as capital receipts.
3. General Balance Sheet:

Under Double Account System, the General Balance sheet is the second part of the Balance Sheet.

It shows the balance of the Capital Account, the Current Assets and Liabilities. The Assets are shown on the right hand side and the Liabilities on the left hand side.

Accounting Treatment For Depreciation of Assets:

Under Double Account System, fixed assets cannot be depreciated in the Capital Account. The fixed assets are expected to have permanent existence and are maintained out of the revenue earned or generated. This means that all replacements made are to be charged to Revenue Account of the year in which they occur.

A Depreciation Fund Account is created and the amount of depreciation is transferred to the Depreciation Fund Account by debiting the Revenue Account and crediting Depreciation Fund Account with the proper amount of depreciation. This helps to prevent the burden of large amount being debited to Revenue Account in any particular year.

This fund is invested outside the business in gilt-edge securities in order to provide funds at the time of replacement of the asset. The depreciation fund appears on the liability side and its corresponding investment appears on the assets side of the General Balance Sheet.

Accounting Treatment For Repairs And Renewals Under Double Account Sysytem:

Repairs and renewals made are debited to Revenue Account of the year in which they occur. Normally a Repairs and Renewal reserve Account is created by debiting Revenue Account and crediting such Reserve Account every year with an estimated average amount of repairs and renewals. The actual repairs and renewals are then charged to this Reserve Account and not to the Revenue Account. This helps to prevent a large amount being debited to Revenue Account in any particular year.