Double Entry System

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.
 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 of accounts is a scientific system of
accounts followed all over the world without any dispute.
• It was developed by ‘Luco Pacioli’ of Italy in 1494.
• Under the double entry system of account, every entry has
its dual aspects of debit and credit.
• It means, assets of the business always equal to liabilities of
the business.
 Personal Account
• Personal A/c are those which are opened under
the name of individual, firm, company
,institution etc.

Personal account are further divided into three

type :
• Natural personal A/C
• Artificial personal A/C
• Representative personal A/C
 Type of Personal A/C
NATURAL PERSONAL ACCOUNT: the term natural
person means person who are creation of god.
For example:
Kamal A/c, sham A/c, or Rita A/c

ARTIFICIAL PERSONAL A/C: are those which are created

by person and have some existance in eyes of Law. It
can be created as well as dissolved by law only
For example :
any firm, club, college, trust etc.
• REPRESENTATIVE PERSONAL A/C:
These are account which represent a certain
person or Group of person
For example:
Outstanding salary (due to staff represent
the A/c of the person to whom the salaries
have to paid)
Rent A/c ( rent paid to landlord represents
the A/c of the landlord to whom the rent is to
be paid.)
 Rules of Debit and Credit
• Personal Accounts: (Natural Persons and Artificial
Person)
RULE : DEBIT THE RECEIVER
CREDIT THE GIVER

For example: Cash paid to Mohan Rs. 500

• In this transaction cash ( asset – real account) is
going out and Mohan (personal – personal A/c) is
receiving cash.
• Hence Mohan A/C Dr
To cash A/c
 IMPERSONAL ACCOUNT
I. REAL ACCOUNTS
Real accounts record property/ assets of the
business. It is mainly made for the assets A/c
Examples of real accounts are:
Furniture account, building account, Cash
account etc
Real Account further divided into to types are:
Tangible and Intangible real A/C
 Rule of Debit & Credit of Real
Accounts:(Assets)
• RULE : DEBIT WHAT COMES IN
CREDIT WHAT GOES OUT

According to real accounts principle, when an assets is received by

the business, the asset account is to be debited, when any asset
goes out of the business, the asset account is to be credited.

For example : Purchased office furniture for Rs. 10,000.

• In this transaction office furniture (asset – Real A/c) is
coming in and cash (asset – Real A/c) is going out.
• Hence, Office furniture A/C Dr
To cash A/C
II. NOMINAL ACCOUNTS
these accounts relate to expenses ,losses,
incomes and gains.
Example:
Expense- discount allowed A/c,
Loss- Loss by fire A/c
Income and gains-Bad debts recovered A/c,
Interest received A/c, Discount Received A/c
 Nominal Accounts: (Expenses, Losses,
Incomes, Gains)
• RULE : DEBIT ALL EXPENSES AND LOSSES.
CREDIT ALL INCOMES AND GAINS.

According to normal account principle, expenses and

losses are to be debited and all incomes and gains of
the business are to be credited.
For example: Rent Received Rs. 200
In this transaction, cash (Real A/c) received is asset and
rent received is income. Hence rent A/c being income
to be credited and cash A/c is to be debited.
 Features or Importance
• Two parties: Every transaction involves two
parties – debit and credit. According to the main
principles of this system every debit of some
amount creates corresponding credit or every
credit creates corresponding debit for the same
amount.
• Giver and receiver: Every transaction must have
one giver and one receiver.
• Exchange of equal amount: The amount of
money of a transaction the party gives is equal to
the amount the party receives.
• Separate entity: Under this system business is
treated as a separate entity from the owner.
Here the business is considered as a separate
entity.
• Dual aspects: Every transaction is divided into
two aspects. The left side of the transaction
debit and the right side is credit.
• Results: Under double entry system totality of
debit is equal to the totality of credit. In it
ascertainment of result is easy
 Importance / Advantage
(1) Accuracy :
More accuracy can be achieved by following
double entry system in Accounting as it has been
proved to be a systematic method of recording
financial transactions.
(2) Easy to detect errors and omissions :
In double entry system if we commit any errors or
omissions in preparation of financial statements it
is very easy to detect them as this system is based
on recording both the aspects of a transaction.
(3) Consistency :
Results of one period can be compared with
the corresponding period as this system
enables Consistency in preparation of
accounts.
(4) Helps in decision making :
Double entry system ensures that all the
relevant financial data is recorded in books of
accounts. So when ever we require any
customized report then we can generate from
these data which helps is decision making.
(5) Scientific:
The double entry system is a scientific system of
book-keeping. It has own rules and principles for
recording financial transactions and preparing
financial statements.

(6) Complete record:

The double entry book-keeping system maintains
records in all personal and impersonal accounts.
Such complete record of financial transactions
helps to identify the actual financial position of a
business organization
(7) Globally accepted :
This system is based on Generally Accepted
Accounting Principles. So it is a globally
Accepted system
 Disadvantages
• Under this method each transaction is recorded in books
in two stages (journal and ledger) and two sides (debit
and credit). This results in increase of number and size of
books of account and creation of complications.

• It involves time, labor and money. So it is not possible

for small concerns to keep accounts under this system.

• It requires expert knowledge to keep accounts under this

system.

• As the system is complex, there is greater possibility of

committing errors and mistakes.