The systems of recording transaction in the books of accounts are two types.
- Double Entry System
- Single Entry System
Double Entry System
Double entry is an almost universally used system of business record keeping. It is a system of recording business transaction which recognises that each transaction has a dual aspect. It is so named because the principle of double entry bookkeeping are based upon every transaction having two aspect or two parts, i.e. two account are always affected by each transaction. Under this system, each transaction is seen as a flow of value from one account to another. The receiving account is debited with the amount and the giving account is credited. Therefore, every debit has an equal and offsetting credit.
If only two accounts are affected (as in the purchase of building for cash), one account, building is debited and the other account, cash is credit for the same amount. If more than two accounts are affected by a transaction, the sum of the debit entries must be equal to the sum of the credit entries.
It is therefore, necessary to decide for each transaction, the following:
a) Which are the two accounts involved ,and
b) Whether the entries to those accounts are debit or credit.
Applying the principles of double entry will result in the amount being debited to an account being equal to the amount being credited to another account. The rule of double entry system can be explained in terms of the basic accounting equation. Liabilities + Capital = Assets.
Single Entry System
Single Entry system of recording transaction in the books of accounts may be defined as an incomplete Double Entry System, In this system, all transaction are not recorded on double entry basis. As regards some transaction, both aspects of the transaction are recorded, as regards others , either one aspect is recorded or not recorded at all. Instead of maintaining all the accounts ,only Personal Accounts and Cash Book are maintained under this system. The account maintained under this system are incomplete and unsystematic and , therefore. not reliable. The single entry system also is known as Accounts From Incomplete Records.