[Commerce Class Notes] on Double Entry System Pdf for Exam

Double-entry accounting refers to the method of bookkeeping which helps a company to maintain its account and keep it balanced which shows the true picture of the finances of the company. Double-entry refers to the use of an accounting asset which is a summation of liabilities and equity. The credits of an account should be equal to keep an equation in perfect balance. Accountants make use of the credit and debit entries so that they can record the transactions of all the accounts. All these credits and debits are shown in the Balance Sheet. 

Types of Accounts

All the day to day finally activities are recorded and measured by the accounting and bookkeeping process.  An event between two economic entities like between customer and business, or vendor and business-like known as a transaction. To record this event we use accounting and bookkeeping.

A systematic accounting process is a procedure under which the activities of the business are recorded under systematic accounts to keep data sorted and classified under different heads.

To classify all the business accounting entries  and transactions there are 7 main types of accounts, which are :

• Assets

• Liabilities

• Equity

• Gains

• Losses

• Expenses

• Revenues

The continuous process of tracking changes in various types of accounts while continued business operations are known as accounting and book-keeping.

Double Account System

The meaning of the double-entry system is generally based on the Dual Aspect Concept. The Dual Aspect Concept is based on the fundamentals of accounting principles. All the transactions related to the business are recorded in the book which is specifically based on the principle of accounting. 

According to the Dual Aspect Concept, all business transactions have a two-way or dual effect. This tells us that the business transaction of the particular entity has a minimum of two accounts which are recorded in the books. This principle is known as the double-entry concept or system.

Single Entry System Meaning 

A single entry system refers to the form of bookkeeping where each company maintains its financial transactions in a single-entry log. The single-entry system does not involve any formal training and is usually based on new businesses because of its cost-effectiveness and simplicity. 

The single entry system records the description, date, transaction value, expenses and income, and lastly balance. This is maintained while doing every transaction for the company. It also includes income tax depending on the type of business. 

Who Uses A Single Entry System?

Small businesses use a single entry system. They record bare essentials only and the criteria for a company to be rendered fit for such a system are:

• Having few employees.

• Ones that use transactions based on cash

• Very fewer transactions

• Do not have an installment plan

• Have fewer physical assets like equipment, buildings, and vehicles

Single Entry System and Double Entry System 

There are a few significant differences between the single entry system and the double-entry system. These are:

• The single entry system tells about debtors, cash, and creditors’ cash balance only whereas the double-entry system tells about all the business entities

• The records in the single entry system are only related to business. The records in the double-entry system affect all the transactions in the business. 

• The single entry system has an incomplete way of maintaining transactions. In a double-entry system, it is difficult to carry out fraud. 

• Errors cannot be easily found in a single entry system while errors can be easily detected in a double-entry system.

• The single entry system is not accepted by the tax department but the double-entry system is accepted by the taxation department. 

Thus we have double-entry bookkeeping explained through this article.