BOOK-KEEPING SYSTEMS:
During the earlier part of civilization, when business activities were very small, there were no definite principles for the recording of business transactions A person may depend upon his memory for his business dealings of he may keep a record of his dealings in any form The development of economic and business activities, the recording of business transactions has become an art The important systems of book-keeping are discussed below
1- Single Entry System:
It is the oldest system of recording the business transactions It is very simple and easy. No professional knowledge is required to use this system There is no definite method or principles of this system. The small traders use this system to meet their needs. The books of accounts to be maintained mainly depend on the needs of the trader The complete record of all the transactions are not kept, but only the record necessary to be recorded are maintained like cash books and personal ledgers et It is an incomplete record and therefore, unreliable for the reference and analysis purpose it is also not acceptable by the audit and tax authorities and offer government agencies The income or loss is calculated by increase or decrease in assets and liabilities over a period This system does not indicate the true earning and financial position of the business
2- Double Entry System:
Double Entry System of Book-keeping has its origin to an Italian merchant Lacas Pacioli, He wrote a book titled "De-Computis of Scripturis Most of the modern methods of Accounting are adapted from this book.
The Double Entry Book-keeping system can be defined as the system under which the double effect of every transaction is recorded, it means that all cash and credit transactions of the business are recorded indicating the two-fold aspect of each such transaction for example when merchandise is sold for cash, the increase in cash as well as a decrease in the stock of merchandise is recorded. Similarly, when the merchandise is sold for a credit. the increase in receivables and decrease in stock or
merchandise is recorded. This means that every benefit in business has its corresponding loss This is the famous principle of the Double Entry System and reads as
"Every Debit must have its corresponding credit Therefore; under the double entry system every debit and its corresponding credit are recorded in the books of accounts.
FEATURES OF DOUBLE ENTRY SYSTEM
The main features of the Double Entry System of Book-keeping are as under
1. It brings into record both the aspects of every transaction i.e., the personal as well as impersonal/real.
2 The Trial Balance can be drawn to prove the accuracy of the record.
3 Income Statement and Profit & Loss Account can be prepared to know the net results of the business.
4. It provides complete information about the assets and abilities of the busier Ess and a Balance Sheet can be prepared.
Advantages of Double Entry System Over the single entry System
the Double Entry System of Book-keeping is much better than the single entry System on account of the following reasons.
1. The single entry System of Bookkeeping does not record the two-fold aspect of every transaction as such the arithmetical accuracy of the entries in the books cannot be tested.
2. Under the Single Entry System, no nominal accounts are kept, as such it is not possible for a trader to prepare a profit and loss account but under the Double Entry System of Book-keeping, Trading and Profit and Loss Account can be prepared and the proprietor can know the profit earned or loss sustained by his business.
3. Under the Single Entry System as no real accounts is maintained the preparation of the Balance Sheet is not possible. But under the Double Entry System, which maintains full record of all real, nominal and personal accounts preparation of a reliable Balance Sheet is easy.
4. Under the single entry System, the complete record of each transaction is not kept as such frauds and errors cannot be easily detected, but under the Double Entry System, where a complete record of each transaction is kept, errors and frauds can be detected and located easily.
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