Generally, every business contains a proper accounting system because it defines each transaction of business related to cash, assets, liabilities, expense, revenue, equity so that at the end of the year, the company analyzes the net income by calculating gain or loss. Most of the companies use a single entry system and most of the companies use a double entry bookkeeping system but according to the accounting system and want to make satisfied accounting records for the future then double bookkeeping entry system is the best technique to record transactions of small and big business or companies or firms.
Double Bookkeeping Entry System is a system in which we can record one of our transactions in two aspects: debit side and credit side and express in two different ways also. A transaction may affect either both sides of the equation by the same amount or one side of the equation only, by both increasing or decreasing it by equal amounts.
We record an accounting equation in a double bookkeeping entry system which shows that the assets and liabilities of a company are equal with mathematical expressions.
Many people have confusion about these accounting systems so today we are showing this difference with definition, and other important points.
Differentiate between a Double entry bookkeeping system and a Single-entry system.
Transaction records: One transaction record on both aspects (debit and credit) under a double-entry bookkeeping system. On the other hand, the only transaction records on one aspect.
Types of accounts: Personal, nominal, real accounts are recorded under a double-entry bookkeeping system. On the other hand, personal accounts and cash accounts are recorded.
Balance sheet: A Balance sheet is prepared for analyzing the financial status of the company under a double-entry bookkeeping system. On the other hand, the balance sheet is not prepared; rather, a statement of affairs is prepared for analyzing the financial status of the company.
Preference: Small and big organizations, both prefer a double-entry bookkeeping system for recording. On the other hand, only small organizations prefer a single entry system.
Trial balance: Trial balance is prepared for measuring accuracy under a double-entry system. On the other hand, Trial balance is not prepared for measuring accuracy.
Legal: This double-entry system is legal. On the other hand, a single entry system does not contains laws.
Cost: Double entry system is a more expensive process. On the other hand, a single entry system is less expensive.
Expert knowledge: Need advice from experts under the double-entry system. On the other hand, no need for knowledge from experts.
Method: Double system is a more complex process than a single entry system.
Final accounts: Accountants efficiently prepare final accounts with two aspects under the double-entry system. On the other hand, they face difficulty in the preparation of final accounts under a single entry system.
So there is some basic difference between the two accounting systems which will show “which is the best” according to the service for recording accounting.
You know what with the double-entry bookkeeping system, transactions affecting two items and showing the assets are equal to liabilities account (debit is equal to the credit side).
An Accounting system is a way of calculating and measuring the financial position of the company with financial statements such as income statements, profit and loss statements, cash flow statements. And all these statements are judged and made into a balance sheet.
Examples of Double Entry System
- Mukul started business with cash Rs.1000
Cash a/c debit – 1000
To Capital a/c – 1000
(Started business with cash)
- Bought goods for cash 100
Purchase a/c debit – 100
To cash a/c – 100
(Being goods purchased)
- Sold goods to rakesh
Cash a/c debit – 200
To sales a/c – 200
(Being goods sold to rakesh)
- Ram returns goods
Sales return a/c debit – 50
To cash a/c – 50
(Beings goods sold to ram returns)
These are some basic double entries which show how one transaction can affect both sides and clarify the financial statements.
What is the motive of preparing a Double Entry Bookkeeping System?
The double entry system has to represent equal assets and liabilities so that they pass the entry of one transaction in two ways on the debit side and credit side. Sometimes with a single entry system, viewers can’t understand the transactions because of uncertainty, it is the easiest way but not the best and efficient way to show the entries of the transaction rather, this accounting system confuses the people to understand the transaction of total assets and total liabilities to get the valid result.
Advantages of Double-entry system
Avoid mistakes in entries
In a single entry system, accountants pass a single-entry of any account so it contains many little mistakes or errors because of which assets are not equal to liabilities and this is unhealthy for business financial statements but With a double-entry system, accountants avoid errors because it contains two entries that clarify each transaction with two ways.
Analyze financial position
The Double-entry system is the best and accurate accounting system with complexion but clears all the doubts of the company.
This accounting system is considered a standard and reputable system because of its clarity and also improves the standard of other financial accounts like profit and loss accounts, income statements, balance sheets.
Clarify all the accounts
Assets: Suppose, you have purchased a vehicle for the company’s purpose so this purchase transaction will affect both places: debit or credit.
Increase in assets on the debit side because vehicles are the asset. On the other hand, Decrease in the credit side because cash reduces.
Expenses: Suppose, you have paid a company’s electricity bill so this expense increases on the debit side. On the other hand, decrease in credit because expense reduces.
Equity: Suppose, the owner takes the money from the company’s capital for personal use, so it decreases the debit side and increases the credit side.
Liabilities: Suppose, you have paid the loan to the lender so it decreases the debit side and increases the credit side.
Revenue: Revenue is considered as the profit for the company. If the company generates more revenue so it gives a positive impact on profit.