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03 Accounting and financial statements > Double entry system and ledgers - Pg. 19

19 C h A P T E R T h R E E ACCoUnTInG AnD FInAnCIAl STATEMEnTS he purpose of this chapter is to provide a basic knowledge of the double entry system and of how accounts are constructed so as to enable you to understand financial statements and to make better decisions. The basis for financial accounting is the double entry system. This system was first described in a work entitled Summa de arithmetica, geo- metrica, proportioni et proportionali compiled by the monk Luca Pacioli. It is a marvellous system that, if mastered, will make your understand- ing of financial management and business a whole lot easier. The double entry system, like many good ideas, is very simple and it is my intention to enable you to grasp the basics that will help you understand financial statements. As this is a text for non-financial managers we will not be covering advanced financial accounting or international accounting standards and regulations. We will focus on the basics and what is generally accepted accounting practice through- out the world. T Double entry system and ledgers The double entry system is so named because it recognizes that every financial transaction has two aspects: receiving and giving. So, if I were to receive 200 of cash from a customer I would record both aspects of the transaction in my accounts. I would show that I had received cash