Accounting System

During 700 B.C., the practice of book-keeping was started with the invention of money in Lydia, Greece. There were different types of the recording system which were used for recording the financial transactions at that period. As the change in time and increase in the volume of financial transaction, the traditional type of accounting system was unable to fulfill the complete purpose of accounting so, the new and modern accounting system was gradually developed to maintain an a systematic record of the financial transaction.

The accounting system can be classified as follows:

Single Entry System

Single entry system is the type of accounting system which does not have any fixed set of rules and principles for recording the financial transaction and does not follow the basic principles of accounting as well. This system maintains the record of cash and personal accounts only but ignores the transactions of real and nominal accounts. It does not have any specific rules and principles for the preparation of the accounts which is also known as accounting for incomplete records.

The following are the main definitions of single entry system:

“Single entry system is a system of book- keeping in which, as a rule, the records of only cash and personal accounts are maintained. It is always incomplete double- entry system varying with circumstances.” - Kohler

“Single- entry system is a method employed for recording transactions, which ignores the two-fold aspects and consequently, fails to provide the business man with information necessary for him to be able to ascertain the position.” – R. N. Carter

From the above-defined definitions, we can be clear that single entry system is that type of book-keeping which does not have any specific rules and principles for recording the financial transactions. It usually maintains only the transactions related to cash book and personal accounts of debtors and creditors and ignores the real and nominal accounts.

Double Entry System

After the failure of the single entry book-keeping system, a new and modern organized system was introduced which is known as double entry system. Double Entry system is defined as the accounting system in which every financial transaction is separated under two account heads: debit and credit. It explains that there are two-fold effects of every financial transaction. Both account heads must be equal to each other i.e.Debit = Credit.

Some of the definitions of double entry system of book-keeping are:

"The specific technique which reflects the concept of duality is known as double entry book- keeping." -Lewis and Gillespie

"Double entry system is the system under which each transaction is regarded to have two-fold aspects and both the aspects are recorded to obtain the complete record of dealings."- Juneja, Chawla, and Saksena

From the above definition, we can say that double entry system is regarded to be the most systematic and scientific system under which every financial transaction is recorded in two separate accounts with the equal amount to determine the true financial position of the business.

Features

Some of the main features of double entry system of book- keeping are as follows:

1. Double effect
   The double entry system of book- keeping shows every transaction under the double effects i.e debit and credit. It records each financial transaction into two different accounts on two opposite sides.
   
   
2. Equal effect
   Every financial transaction affects the two different account heads with the equal amount. Both the debit as well as credit side is affected by the equal amount.
   
   
3. Debit and Credit
   The double entry system provides two aspects of each transaction under 'Debit' and 'Credit'. One of the two aspects is debited and another is credited in the book of accounts.
   
   
4. Scientific
   The double entry system is considered to be a scientific system of book keeping. It has its own rules and principles for recording the financial transactions and preparing the financial statements.
   
   
5. Complete record
   The double entry system book-keeping system maintains all the records into three account heads: Personal Account, Real Account and Nominal Account. It helps to identify the accurate financial position of a business organization.
   
   

Advantages

1. It helps to record the financial transaction in a systematic and scientific manner.
2. It helps in preparing the trial balance to check arithmetical accuracy of books of accounts.
3. It facilitates for making an audit of the books of accounts of the organization.
4. It helps in ascertaining the financial position of the business by preparing trading and profit/ loss account and balance sheet.
5. It provides the required financial information to the concerned party for making plans, policies, and decisions.