Bookkeeping is a part of the process of maintaining accounting records. It is divided into two parts: a single entry system and a double-entry system

Bookkeeping is a part of the process of maintaining accounting records. It is divided into two parts: a single entry system and a double-entry system. Usually, small sole proprietorship and partnership businesses do not use a double entry bookkeeping system. Cash and credit transactions are the only ones they need to keep track of. They will, however, want to know the performance and financial status of their company at the end of the accounting period. The accountants have various difficulties as a result of this. Most small firms are focused on quickly setting up a system to pay vendors and record income and are unaware that they must choose between single entry and double entry bookkeeping. So, in this paper, let's learn about the differences between single entry and double entry systems and why they are used in recording business transactions.
Single entry system of bookkeeping, is economical but at the same time it is unscientific because it does not records all the transactions rather only a few ones are tracked and some are recorded partially. On the other hand, double entry system of bookkeeping is based on fundamental principles of accounting and so it records each and every aspect of the transaction.
Single Entry System of Bookkeeping is the oldest method of maintaining financial records in which an entry is made for every financial transaction. In this system, the corresponding opposite entry is not made because the transactions are recorded only once. Full record keeping of transactions is not done due to a single entry of every transaction. It mainly keeps track of the transactions relating to cash receipts and disbursements.
This method of keeping records is primarily used by a sole proprietorship and partnership firms. This system does not require high knowledge and expertise for entering transactions. Journals, Ledgers and Trial Balance, are not prepared for it. However, the income statement is prepared to know the profit or loss of the business.
Due to some drawbacks like one sided entry, reconciliation of accounts is not possible, the possibility of frauds and errors is maximum. That is why it does not coincide with Generally Accepted Accounting Principles (GAAP). Moreover, accounting records maintained under this system are not suitable for tax purpose.
Double Entry System is the scientific method of keeping financial records, developed by Luca Pacioli, in 1494. This system is based on the principle of duality, i.e. every transaction has a dual aspect. Each transaction affects two accounts at the same time, in which one account is debited while the other is credited.
E.g. Suppose Mr. A has purchased goods of Rs.1000 for cash from Mr. B, so here, on one hand, he has received goods and on the other hand the cash is given to Mr. B. So, you should have noticed that the goods have been acquired by giving up cash. Therefore, as its name signifies, this system records both the aspects of a single transaction, i.e. the increase in goods with the simultaneous decrease in cash.
Due to two-fold effect, the system possesses completeness, accuracy as well as it matches with the Generally Accepted Accounting Principles (GAAP). A complete procedure is there for recording every transaction. The procedure starts from source documents, followed by the journal, ledger, trial balance, then at the end financial statements are prepared.
There are fewer chances of fraud and embezzlement because the full-fledged recording of transactions is done in this system. Errors can easily be detected. Further, the accounts can be reconciled, due to the two-fold aspect. Tax laws also recommend Double Entry System to record transactions. Although a person should be professionally skilled to maintain records as per this system. Moreover, due to the complexity of this system, it is time-consuming too.
Double entry bookkeeping has been shown to be reliable. Since 1494 not occurred until now, significant changes in terms of double entry bookkeeping. It relies on debit-credit mechanism, viewed as a mathematical approach by Luca Paciolii in his work entitled „Summa”. (Sony Warsono, 2013).
In essence, the double entry accounting starts at the idea of the existence of a better equilibrium between what holds an entity and the sources of origin of those goods. Basically it starts from accounting analysis of the transaction, which is translated into accounting language through „accounting item” which includes a formula accounts” and an „explanation” of it, and „the amounts”. Formula accounts „simple or composed” expresses graphically all changes in the patrimony of this entity, changes produced by a transaction, by debiting one or more accounts, in correspondence with the crediting of one or more accounts. The purpose of the registrations in the accounts of these transaction is to draw up at the end of each financial year (chalendaristic year) the financial situation, that shows the situation of the entity patrimony at a time.(E.Merce&colab.,2010).
The following are the major differences between single entry system and double entry system of bookkeeping:
A single entry system records entries once, with only the most basic information. A double entry system requires a much more detailed bookkeeping process, where every entry has an additional corresponding entry to a different account. Consider the word “double” in “double entry” standing for “debit” and “credit”. The two totals for each must balance, otherwise there is an error in the recording.
Let’s work with an example. Suppose your orthotic company needed a new machine to build the shoe inserts, and its costs $12,000. In a single entry system, you would have just recorded the very basic information regarding this expense, such as the date and amount. With a double entry system, you would record the $12,000 as a debit to increase your “Equipment” expense account, and as a $12,000 credit to decrease your balance sheet (or cash remaining). As you can see, a double entry system requires more work and more organization from the outset.
A double entry system will also allow for detailed financial comparisons from year to year, so you can better track change in the company’s income or expenses. This system also provides better accuracy (by detecting errors more quickly) and is more effective in preventing fraud or mismanagement of funds.
There are real disadvantages to a double entry system too, but they must be weighed against the previously mentioned benefits to the company. The disadvantages are:
The system is much more complex and harder to implement.
Time-consuming. Every transaction needs to be entered twice, and double-checked.
Costly. Business may need to go to the expense of hiring an accountant or bookkeeper or train staff to learn special software. As the company grows or sales increases, these costs will climb because more work will be required to enter and manage the numbers.
Errors of omission can happen, meaning an entire transaction is not recorded. The total will still tally, because there is no way for the system to know the transaction is missing. That’s because it’s missing in both the credit and debit accounts.
When considering the type of bookkeeping entry system for a business, once must consider that a single entry system might be helpful to a small company that is trying to get off the ground, but that as it grows it will likely find itself in need of a double entry system. That is the time where a business would benefit from consulting an accountant or experienced bookkeeper, and to properly assess a few of the different types of double entry accounting software systems that are available.
A double entry system will provide complete records and allows for the creation of proper financial statements. Although it may free up business owners time to concentrate on other things, it can be costly. The pros usually outweigh the cons and because of its effectiveness, often a double entry system is required by law for public businesses.
In conclusion, both single entry systems and double-entry systems are used for bookkeeping. Both have their own advantages and disadvantages and are preferred by companies based on their requirements. It depends on the type of organization you are working for and the kind of work you do there. People with good double entry systems are preferred by mist big reputed companies as they used to do tedious transactions and account systems. Overall, both single entry and double entry systems have advantages and disadvantages, but the advantage is more in a double-entry system so that it is preferred over the single-entry system. Both are used in accounting, and it is important to have a strong grip as it is also used in higher studies as well.

References

A.T.Tudor, D. Matis (2010): Option for a Modern Accounting System in 19(th) Century Transylvania, Transylvania Review, vol.19, no.1, pag.47-60.
A.T.Tudor, A.Mutiu (2007): Important stages in the development of the Romanian accounting profession (from 1800 up to now), Revista Espaniola di Historia de la Contabilidad, ISSN-e 1886-1881, no.6, pag.183-199.
E.Merce, Ileana Andreica, F.H.Arion, Diana E.Dumitras, Cristina B.Pocol (2010): Management and economic management units in the agriculture, Editura Digital Data, Cluj-Napoca, pag.333-370.