In this post, we will learn about the Single Entry and Double Entry.
Single Entry and Double Entry
|Industrial Relations and Labour Laws PDF Download Link||CLICK HERE|
|Social Security in India PDF Download Link||CLICK HERE|
|General Accounting Principle PDF download link||CLICK HERE|
|Indian Freedom Struggle PDF download Link||CLICK HERE|
|Economics PDF Download Link||CLICK HERE|
|Insurance PDF Download Link||CLICK HERE|
|Globalisation & Development Notes||CLICK HERE|
Single entry is a basic accounting system used for recording financial transactions in which each transaction is recorded only once, either as a debit or a credit, and there is no attempt to balance the books. This system is typically used by small businesses or individuals who do not require the complexity of double-entry bookkeeping. However, it is generally considered less accurate and reliable than double-entry accounting, which provides a complete and accurate picture of a company’s financial transactions and performance.
Characteristics of Single Entry
- Only personal accounts and cash book are maintained.
- Does not provide the true financial position of a company.
- No fixed set of rules
- Real and Nominal A/C are not maintained.
- Balance sheet and profit and loss A/C cannot prepared.
- Trial balance cannot be prepared.
- Not accepted by tax authority.
Double entry is a fundamental accounting concept that states that every financial transaction has equal and opposite effects in at least two different accounts. This means that for every debit entry made in one account, there must be a corresponding credit entry made in another account, and the total debits must always equal the total credits. This system provides a comprehensive method for recording and tracking financial transactions and is widely used in modern accounting.
Characters of Double Entry
- Scientific system
- Complete record of transaction
- Check the accuracy of accounts by Trial Balance
- The financial position of the concern can be ascertained through the preparation of Balance Sheet.
- Helps in decision making.
- The systematic and scientific recording of business trasactions on the basis of this system minimise the chances of fraud.
Basic Concepts of Accounting
Dual Aspect Concept
The dual aspect concept is a fundamental principle of accounting that states that every transaction has two aspects: a debit and a credit. This means that for every transaction recorded in a company’s books, there will always be at least two accounts affected, with one account debited and the other account credited by an equal amount. In other words, every debit has a corresponding credit, and the total debits must always equal the total credits. This principle is essential for maintaining the accuracy and integrity of a company’s financial statements, as it ensures that all transactions are properly recorded and the financial position of the company is accurately reflected.
Revenue Realisation Concept (Matching Principle)
Revenue Realization Concept is an accounting principle that states that revenue should be recognized only when it is earned and the amount can be reasonably determined. This concept guides the recording of revenues in the books of accounts of a business entity. It ensures that revenue is not recorded prematurely, such as when an invoice is issued, but only when the good or service has been delivered or performed and the payment can be reasonably expected. This principle is important in providing an accurate picture of a company’s financial performance and helps to avoid overstatement or understatement of revenue.
Historical Cost Concept
The historical cost concept is an accounting principle that states that assets should be recorded at the original cost at which they were purchased, rather than their current market value. This means that the cost of an asset is recorded at the time of purchase and is not adjusted over time for changes in market value. This concept is based on the idea that the original cost of an asset is the most objective and verifiable measure of its value. It is one of the fundamental principles of accounting and is used to ensure consistency and accuracy in financial reporting.
The matching concept is a principle in accounting that requires the recording of expenses in the same accounting period as the revenues they generate. According to this concept, businesses must match their expenses incurred while generating revenue with that revenue. This means that the expenses must be recorded in the same accounting period as the revenue they helped generate. For instance, if a company sells a product in January, the cost of producing that product must be recorded in the same month. The matching concept ensures that the financial statements accurately reflect the profitability of the business during a specific period.
Full Disclosure Concept
Full Disclosure Concept is a principle in accounting that requires companies to disclose all relevant information in their financial statements to enable stakeholders to make informed decisions. Under this concept, companies must provide detailed information about their accounting policies, significant accounting estimates and judgments, contingent liabilities, related party transactions, and any other information that may have a material impact on the financial statements.
The Full Disclosure Concept is based on the principle of transparency and aims to ensure that all relevant financial information is disclosed to stakeholders. This concept is important as it helps to promote trust and confidence in financial reporting, reduces information asymmetry, and enables stakeholders to make informed decisions about the company’s financial health and future prospects. It is a key principle in financial reporting and is required by accounting standards and regulations in many countries around the world.
Verifiable and Objective Evidence Concept
The Verifiable and Objective Evidence Concept is a principle of accounting that states that all financial transactions must be supported by verifiable and objective evidence. This evidence should be able to be independently verified by a third party, such as an auditor or regulatory authority, to ensure that the financial statements accurately reflect the company’s financial position.
Examples of verifiable and objective evidence include bank statements, invoices, receipts, and other documents that provide evidence of the transaction. The use of verifiable and objective evidence helps to ensure that financial statements are reliable and accurate, and that they provide a true and fair view of the company’s financial position.
Modifying Principles of Accounting
Cost Benefit Principle
The cost-benefit principle is an accounting principle that states that the cost of providing information in financial statements must be weighed against the benefits that can be derived from using that information to make decisions. The principle is based on the idea that the cost of gathering, processing, and communicating financial information must not exceed the benefits that can be derived from that information. In other words, financial information should be presented only if the benefits of doing so outweigh the costs. This principle helps businesses to make rational decisions by providing a cost-benefit analysis of financial information.
The Materiality Principle is an accounting concept that states that an accountant or auditor should only include material items in the financial statements. This principle is based on the assumption that investors and other users of financial statements are interested in information that can have a material impact on their decision-making.
Therefore, only information that is material, or relevant, to the decision-making process should be included in the financial statements. Materiality is based on a company’s size, the nature of operations, and the user’s perspective. Items that are immaterial may be omitted from the financial statements as including them would be time-consuming and costly without any significant impact on the financial statements’ overall reliability. The materiality principle helps in making financial statements more relevant, reliable, and useful to the users.
The consistency principle is an accounting principle that requires a company to use the same accounting methods and procedures consistently over time. This principle ensures that financial statements are comparable across different periods and that any changes in accounting methods are clearly disclosed. In other words, once a company has chosen a particular accounting method or procedure, it should continue to use that method consistently in the future, unless there is a valid reason for changing it. This principle helps to ensure that financial information is reliable and meaningful to users of financial statements.
Prudence Principle (Conservatism)
The prudence principle is an accounting principle that suggests that one should not overestimate revenue or underestimate expenses when there is uncertainty in financial transactions. It means that if there is a choice between two alternatives, one that would overstate profit or assets, and the other that would understate them, then the latter should be chosen. The prudence principle is also known as the conservatism principle. Its main objective is to ensure that financial statements do not overstate an entity’s financial position or performance.
Have You Downloaded Our App?
Best Courses & Test-series at Affordable Prices
Nishant eAcademy App
- Topic-wise Recorded Video-Classes
- Topic-wise Practice Test
- Full-Length Mock-Test
- Doubt Batch
FAQs on Single Entry and Double Entry
What do you understand by Single Entry System and Double Entry System?
Meaning & Definition of Single Entry and Double Entry:
Single Entry System: It is an incomplete, inaccurate, unscientific and unsystematic system of book keeping
Double Entry System: The basic principle of the system which says that for every debit, there must be a corresponding credit of equal amount and for every credit, there must be a corresponding debit of equal amount.