Double and single-entry systems of accounting are used a lot in accounting departments of various companies. However, often people get confused about the difference between double entry system and single entry system. This confusion in turn makes it difficult to decipher as to which system of accounting is to be used when. Hence in this article, we try to demystify the fundamental concepts between the two systems and what advantages each of these systems has, so that next time you may be fully aware of which system you should use based on your requirement.
What is the double entry system of accounting
The double entry system of accounting is one of the oldest accounting methods known to man. The basic idea behind it is that each transaction has two entries; one entry in debit and another one in credit in the books of the business. There is no need for a separate account book and it can be done right on your ledger, the cash book and even on a wall chart that you have at home. The double-entry accounting method allows both parties involved to be recorded, which helps document the transactions clearly and keeps them organized properly.
What is a single entry system of accounting
A single entry system of bookkeeping is a financial accounting system where the transactions of business affect only one account. Contemplate how the value of your inventory would increase or decrease after selling an item to one of your customers. This increases or decreases the value recorded in your accounts receivable account, which then causes an increase or decrease in your inventory account.
Benefits of double entry system of accounting
1. Easy tax processing
A double entry system is easy to use, and the accountant can easily process the tax returns in the same way as a single entry system. This makes it easier for the accountant to prepare the tax returns in a timely manner and provide them to the government on time.
2. Mathematical accuracy
The mathematical accuracy of double-entry accounting is much higher than that of other systems. It is because, every transaction has two entries, one in debit and one in credit, which makes it very easy for accountants to record transactions accurately and quickly. In this way, they are able to monitor their transactions more effectively and ensure that there is no overstatement or understatement of income or expenditure items. This accuracy is further increased if instead of manual calculations you use inbuilt features of reputed accounting software like the journal voucher in tally.
3. Fewer frauds
One of the major advantages of double-entry accounting systems is that they help in preventing fraud from occurring within a company or organization. As this type of accounting system requires every transaction to have two entries; there are certain checks that must be made before a transaction can be recorded as an expense or a revenue item. This makes it difficult for anyone with ill intent to make any false claims regarding their expenses or revenues etc., which will be immediately detected by an auditor or accountant who has been trained well on how to spot these kinds of anomalies.
Benefits of single entry system of accounting
1. Economical
The single-entry accounting system gives you a clear view of your business’s financial position, with each transaction recorded in one place. This means that you have less work to do, and you can spend less time on bookkeeping.
2. Easy to calculate profit
With a single-entry accounting system, it is easy for you to calculate the profit of your business because all the transactions are recorded in one place. You don’t have to worry about double-entering data or calculating different accounts separately.
