Introduction
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.
FAQs on Double Entry System of Accounting: Meaning and Applications
1. Define a double-entry system.
A double-entry system refers to the system in which the accounts are maintained in a book. All the transactions of a company are maintained in this book. Double-entry books have two opposite and corresponding entries that are known as credit and debit. The right side is the credit and the left side is the debit. Double-entry meaning also refers to the transactions that are effective in two accounts one that includes debit and the other that includes credit. The accounting equation refers to the detection tool that detects all the errors present in the transactions.
Students can get a more detailed study on this topic at Vedantu's official site and get ready for their examination. The expert team of top-notch teachers will guide you to get the best study material and live online learning to make sure that you can understand the chapter well and all your doubts are clear.
2. What are the characteristics of the double-entry system?
Characteristics of the double-entry system are the following-
Two Parties: All the transactions that are performed in the business involve two parties; one is the debit and the other is the credit. According to the principle of the system, all the credits created are correspondence to the credit.
Receiver and Giver: All the transactions should involve debit and credit.
Separate Entity: According to this principle, all business organizations are treated as separate entities from its owner.
Results: In the double-entry system, the total of credit entries is equal to the total of debit entries.
Dual Aspects: Transactions are divided into two aspects. The left side is the debit while the right side is the credit.
Exchanging Equal Amount: The amount of money that the party gives is equal to the amount of money that the receiver receives.
Candidates should study a double-entry system with lots of practice questions prepared by Vedantu based on the double-entry system. This chapter has high weightage in examination. Also if you understand the concept well then you can score easily in this chapter. When you solve the double-entry system question you will know by yourself whether your answer is correct or not. And you can work accordingly to get more marks.
Students' self-confidence can also be boosted by using sample papers prepared by Vedantu. To improve results, the candidate can assess their strengths and weaknesses and work on weak areas. You will also fare better if you continue to work on your weaker topics by practicing sample papers.
3. What are the disadvantages of the single entry system?
Disadvantages of the single entry system are:
Incomplete System: Single entry system is called to be an incomplete system because it does not record the transactions of both sides. It also does not maintain any record of the business transactions except those that are in the cash account.
Errors and Frauds: The single-entry system of book-keeping is said to be unscientific, inaccurate, and incomplete. It does not check any errors that are present in the account and hence, lacks arithmetical.
Unsystematic: This type of system is unsystematic because they are fixed on a few sets of rules and regulations and do not work more than that
4. What are the Advantages of the Double Entry System?
The advantages of the double-entry system can be studied with the help of the study material provided by Vedantu’s expert that has all the necessary information which students need to know about the Double Entry System. Here we have listed a few advantages of the Double-entry system:
The accuracy of accounting is increased because of the double-entry system, through a trial balance device.
It helps you calculate the profits and losses of a company for the year in detail.
A double-entry system helps in controlling as the company can keep the accounting records in details
The records details help to make a comparison between first-year accounts and second-year accounts and then if any deviation is found it can be worked upon to get better profits in the coming year.
5. What is debit and credit?
Debit and Credit is accounting is described as, In a double-entry accounting and bookkeeping system, debits and credits are required to input data. A debit entry on the left side of the account ledger is a debit entry, while a credit entry on the right side is a credit entry.
Finally, the amount of the Debit and Credit sides must be equal to complete an entry. All debits do not always equal a rise in the account, and all credits do not always equal a loss. A debit entry may be used to boost one account while decreasing another. We need to understand the concept of debt is what comes in and credit is what goes out.
Further to get more understanding on this topic students can refer to the expert team of Vedantu where you can find the best study material for understanding debit and credit and double-entry systems. Also, students can avail themselves of the live online tuition classes with top-notch teachers to get personalized classes that will help you to solve your queries.
