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Systems of Accounting . #Double entry system and Single entry system.

  • The systems of recording transactions in the book of accounts are generally classified into two types, viz. Double entry system and Single entry system.

 

  • Double entry system is based on the principle of “Dual Aspect” which states that every transaction has two effects, viz. receiving of a benefit and giving of a benefit.
  • Each transaction, therefore, involves two or more accounts and is recorded at different places in the ledger.
  • The basic principle followed is that every debit must have a corresponding credit.
  • Thus, one account is debited and the other is credited.
  • Double entry system is a complete system as both the aspects of a transaction are recorded in the book of accounts.
  • The system is accurate and more reliable as the possibilities of frauds and mis-appropriations are minimised.
  • The arithmetic inaccuracies in records can mostly be checked by preparing the trial balance.
  • The system of double entry can be implemented by big as well as small organisations.

 

  • Single entry system is not a complete system of maintaining records of financial transactions.
  • It does not record two-fold effect of each and every transaction.
  • Instead of maintaining all the accounts, only personal accounts and cash book are maintained under this system.
  • In fact, this is not a system but a lack of system as no uniformity is maintained in the recording of transactions.
  • For some transactions, only one aspect is recorded, for others, both the aspects are recorded.
  • The accounts maintained under this system are incomplete and unsystematic and therefore, not reliable.
  • The system is, however, followed by small business firms as it is very simple and flexible.

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