METHODS OF ACCOUNTING

The business transaction are recorded in two ways. They are.
A. Single entry system
B. Double entry system.

Single Entry system

The method of recording transaction is unscientific and incomplete. Some experts consider that is not at all a system of accounting. Under this system, only one aspect of the transaction is to be recorded instead to two aspects. Hence this system is called single entry system. In this method, accountant maintains or personal accounts and cash book. Alternatively, the accountant maintain personal accounts, real accounts and leaves normal accounts. That is why, this method is knowns as incomplete  double entry system. Since this system records only one aspect of the transaction, it is unscientific and incomplete. Total information is not available for preparing trail balance. Therefore, it is not possible to prepare final account at the end of the financial year to ascertain accurate financial position. Sole trading organization and partnership firms may this method. But corporate bodies shall follow double country book keeping system only. Small business units are using this system even now. It suffers from the following defects limitations.

1. All transactions are not recorded.

2. Only a few accounts are maintained.

3. Trail balance can not be prepared at the end of the year to know the arithmetical accuracy.

4. Final accounts can not be prepared to find out operational results and financial position of the business accurately.

Double entry system

The double entry system was invented by a trader called LUCA PACIOLI of Italy. He wrote about this system in his book titled " DE COMPUTISET SCRIPTURIS"  in the year 1734. According to him, every transaction takes place between two persons or two firms/Enterprise's. When such transaction takes place one person receives the benefit and the other person gives the benefit. These two benefits are inseprarable. Hence, we can not think of one transaction leaving the other. If one person is receiving the benefit means that means that some other person is giving the befit. In accountancy the receiving the benefit is referred as befit aspect and giving benefit is called credit aspect. This the procedure of recording both the receiving and giving aspects related to business transaction is called Double entry system. For example, afirm purchases machine for Rs80,000. The firm receives machine hence, machine is debit and the firm is giving cash hence cash is going out, so credit. In this way for every transaction one account is debited and other account is credited. This principle is knowns principle of double entry. This means for every debit or credit, there will be corresponding credit and respectively. This is the main feature of Double entry system