Systems of Accounting
There are many ways of classifying the systems of accounting. The most popular ways are.
- Single entry system
- Double Entry system
Single Entry System
It is a system of accounting under which only one aspect (Debit or Credit) of the transaction is recorded. It is usually used by small concerns which have very few transactions.
Double Entry System
Int he double entry system of book-keeping, a complete record of both the aspects of every transaction is maintained. It states that every accounting transaction should always be recognised in two accounts, one as debit and the other as credit.
The following chart explains the way in which accounting transaction are recorded in the double entry system and financial statements are prepared.
Most businesses now follow the double entry system of book-keeping. To under-stand and appreciate the advantages of the double entry system, it is necessary to examine the single entry system of book-keeping which is much simpler. In its most basic form, a single entry system is similar to a register and a single line is entered for every transaction. Each transaction is recorded in one column. Each figure is entered as either a positive or a negative in a single column.
The following example illustrates the single entry system.
SINGLE COLUMN SYSTEM
|April 1||Balance brought forward||20,000|
|April 3||Rent paid||(2,000)|
|April 7||Goods purchased||(10,000)|
|April 10||Petrol Bill paid||(500)|
|April 12||Goods sold||7,500|
|April 20||Goods sold||3,000|
|April 30||Balance carried forward||18,000|