Systems of Accounting

 Systems of Accounting

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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