Single and Double Entry System

There are basically two approaches of record keeping

i) Single Entry Systems and

ii) Double Entry Accounting Systems

Single Entry Systems: The term ‘Single Entry Book Keeping’ is generally applied to any system which is not a complete double entry system. Single entry systems of keeping books differ in the amount of detail and information concerning the business but all such systems have one common feature, viz. incompleteness of double entry.There is so much variation in ‘Single entry system’ of keeping records that in case of some of the transactions, no entries may be made; in others a single entry to record only one side of the transaction may be made while the two fold aspect of each transaction as considered in the double entry system is ignored.However in some other transactions a complete double entry may be made.Methods of record keeping in single entry system is quite different from the double entry system and also information is usually available up to a point. The original records such as the cash book, the purchase book, the sale book and returns book, and the bill book are sometimes maintained but postings are only made to the personal accounts concerned. It fails to give information of the impersonal side of a transaction and lays more emphasis in recording the personal side.

Single Entry system of record keeping fails to supply details regarding expenses,purchases and sale of goods as well as cost of assets such as plant and machinery,fixture and fittings and other real and nominal accounts. Thus at any stage when data are required in different aspects single entry system can only furnish a list of Debtors and Creditors along with amount outstanding. In the Single Entry System only final statements (not final accounts) can be drawn up;It may not, however, be concluded from the above discussion that owing to an incomplete record of transactions, it is not possible to determine Profit and Loss for the period. It is possible to draw up a statement of profit & loss showing the difference between the assets and the liabilities at the terminal periods, and a
statement of affairs showing the assets and liabilities on the two sides of the statement on a particular date. In both the statements it may be necessary in appropriate cases to make some adjustments.

The profit and loss is ascertained by comparing the capital at the end with that at the beginning, adjustments being effected in respect of withdrawals or introductions of capital during the period. The withdrawals must be added and introduction of capital be deducted to ascertain the profit or loss. If the closing capital is more than the opening capital such excess is considered as profit for the period. But if the closing capital is less than the capital at the beginning, there is loss for the period, subject to adjustments mentioned above. Capital as considered for this purpose is the excess of assets over liabilities.The disadvantages of single entry system as compared to double entry are many.The arithmetic accuracy of the books cannot be proved, assets and liabilities may be wrongly shown, and the final statement of affairs cannot be relied upon.

The final results concerning the state of business are unreliable, owing to an incomplete record of transactions, lack and loss of information pertaining to the assets and particulars as to gains and losses. In such type of system a Trial Balance cannot be made from the records maintained. Profit determination in these circumstances can be extremely difficult. However many short -cuts are
employed as a means to complete the double entry depending upon the degree of completeness already existing in the books. This form of book keeping is of very limited value and is seldom found in the any concern of importance.

Double Entry Book Keeping

Double-entry book-keeping is the standard accounting practice for recording financial transactions. It is a system of accounts keeping wherein all the financial transactions of an enterprise are recorded in a manner to show the effect of each on the assets, the liabilities, the owner’s equity, the revenue items and the expense items

Double-entry book-keeping is governed by the accounting equation. At any point of time, the following equation must be true:

Assets = Liabilities + Equity

For a particular time period, the equation becomes:

Assets = Liabilities + Equity + (Revenue - Expenses)

Finally, this equation may be rearranged algebraically as follows:

Assets + Expenses = Liabilities + Equity + Revenue

This equation must be true, for any time period. If it is, then the accounts are said to be in balance. If the accounts are not in balance, an error has occurred. For the accounts to remain in balance, a change in one account must be matched with a change in another account(s). These changes are known as debits and credits.Note that the usage of these terms in accounting is not identical to their everyday usage.

Double entry book keeping recognizes the fact that each entry affects at least two accounts. This is the dual or double feature of this system. There cannot be a debit without a corresponding credit and vice versa.

The principle book of account is ledger in which all transactions are ultimately recorded in double entry system although a number of subsidiary books are also necessary. As already mentioned the ledger is a set of accounts of an enterprise.This means ledger comprises of accounts each account being devoted solely to transactions with a particular person or of a particular kind. Having learnt the basics of book keeping I am sure now you are in a position to record business events , present them and interpret.

We shall explain this with the help of an example.

Mr. Ram Singh started dairy business and the following information was obtained

April 1 – Started business with Rs. 30000

April 4- Bought goods with Rs. 20000

April10- Received order for half of the goods from ‘A’

April12- Delivered the goods, A invoiced Rs. 13000

April15- Received order for remaining half of the total goods purchased.

April 21-Delivered goods and received cash Rs. 120000

April 30- ‘A’ makes payment

April 30- Paid salaries Rs. 2100

April 30-Received interest Rs. 500

To understand how the entries are to be made in each account according to double entry system of book keeping, let us first analyse each transaction to see what are the accounts that are affected by each transaction.

April 1- Started business with Rs. 30000

The two accounts involved are cash and owners equity. Cash increases and being an asset it has to be debited. Owners’ equity, a liability also increases and therefore, it has to be credited.

April 4 –Bought goods worth Rs. 20000

The two accounts affected by this transition are Cash and Goods (purchases).Cash balance decreases and hence it is credited and goods on hand, an asset,increases hence it is to be debited.

April 10- Received order for half of goods from ‘A’No entry is required as realization of revenue will take place only when goods are
delivered (Realisation concept).

April 12 – Delivered the goods, ‘A’ invoiced Rs. 13000

This transaction affects two accounts – Goods (Sales) a/c and Receivables a/c.Since it is a credit transaction receivables increase (asset) and hence is to be debited. Sales decreases goods on hand and hence Goods (Sales) a/c is to be credited.

April 15 -Received order for remaining half of goods No entry is required as transaction is not complete.

April 21- Delivered goods and received cash Rs. 12000

This transaction affects cash a/c and sales a/c. Since cash is realized, the cash balance will increase and hence cash account is to be debited. Since the stock of goods becomes Nil due to sale, sales a/c to be credited (as asset in the form goods on hand has reduced due to sales).

April 30 - ‘A’ makes payment

Both the accounts affected by this transaction are assets accounts – cash and receivables. Cash balance increases and hence it is to be debited and receivables balance decreases and hence it is to be credited.

April 30- Paid Salaries Rs. 2100

Because of payment of salaries cash balance decreases and hence cash account is to be credited. Salary is an expense and since expenses has the effect of reducing owners’ equity account, expenses account is to be debited.

April 30- Received Interest Rs. 500

The receipt of interest increases cash balance and hence cash a/c is to be debited.Interest being revenue which has the effect of increasing the owners’ equity, it has to be credited as owners’ equity account increases.

The Cash Account and the Capital Account have been done here, you are advised to prepare similarly the other relevant Accounts.
Double entry system has the following advantages.

1. It provides a complete record of every transaction both in its personal and impersonal aspects.

2. Financial position of business at any movement can be ascertained with the help of balance sheet and profit & loss for any given period can be easily worked out.

3. It provides an arithmetical checks on the records. It , therefore ,reduces risk and facilitates the detection of errors and frauds.

4. From personal accounts the amount due to and by each person with whom the business deals can at any time be ascertained.

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