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Accounting is not as one-dimensional as it may appear to the untrained eye. It also has a variety of systems and types, allowing the accountant to select the system that is best for his company.
We will look at two accounting systems: single entry and double-entry.
What is a System of Accounting?
Accounting systems are the methods of recording financial transactions in books of accounts. Single entry and double or dual-entry systems are the two options.
Let us look at both methods of accounting in a little more detail.
Single Entry System
Pure entry is another name for the single entry system. It deviates from the standard dual-recording format in that only a Cash Book will be kept in a single entry system. The Cash Book will keep track of all cash transactions.
There is no room for any other ledgers in this system. The accounts person simply records all personal transactions in a rough book.
This method, as you can see, is not very scientific. As a result, people rarely use it nowadays. They only use the single entry system to prepare final accounts from incomplete records for whatever reason.
Other notable features of the single entry system include:
The accountant records personal and business transactions together because they only maintain one cash book
This system will disregard both real and nominal accounts
We can calculate profit or loss, but we cannot represent the company’s financial situation
Because there is no trial balance, we cannot verify the arithmetical accuracy of the accounts
The Double-entry System of Accounting
This system is the conventional method of recording financial accounting transactions. The double-entry or dual-entry system is a scientific method that must adhere to certain rules and principles.
The idea that every transaction affects two accounts forms the basis of this technique. The debit and credit rule states that a debit entry must accompany every credit entry.
The double-entry system is the most widely used and recognised in the accounting world. The following are some of the system’s most noteworthy features:
This system keeps track of all three types of accounts: real, nominal, and personal
We can use the trial balance to verify the arithmetic accuracy of the financial records
There are not many changes to the system
It enables the creation of a balance sheet that reflects the organisation’s financial situation
This double-entry system makes it simple to detect frauds and errors
Basis of Accounting
The basis of accounting is concerned with the timing of revenue recognition. This timing refers to when one should record the revenue in the books of accounts.
The cash basis of accounting and the accrual basis of accounting are two approaches to this puzzle. Let us take a quick look at both of them.
Cash basis of Accounting
It is the more straightforward method. We will only record an income when it comes in under the cash accounting system. As a result, once the organisation receives payment in cash, it earns an income. Similarly, the accountant will record the expenses only after they incur them.
Take, for example, a company that pays its employees’ salaries for the month of June on July 3rd. Although the expense is for June, the accounts personnel will record this salary expense in July.
Similarly, assume the organisation made a credit sale on August 5th. However, it will receive the payment only on October 11th. Consequently, it will record this sale on that date.
Accrual basis of accounting
Accounting on an accrual basis is a more logical and scientific method. Most businesses use this method because it provides a more accurate picture of their financial situation.
Revenues and expenses are recognised in the accrual system during the time period in which they occur, rather than when the money is received. Thus, the payment may or may not arrive, but the accountant will record the income if the firm earns it. And, regardless of whether or not the expense is paid, it is recorded when it becomes due.
Moreover, the accounts person will consider all incomes and expenses, both cash and non-cash (such as prepaid/outstanding expenses and accrued/advance income) in the accrual system.
Difference between Single Entry System and Double-Entry System
Conclusion
For students, systems of accounting are an important topic. Single entry and Double-entry systems are the two main types of accounting systems. These notes will be handy for students preparing for their Class 11 and class 12 board exams.
