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Single Entry vs Double Entry Accounting

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Bookkeeping is the process of recording of financial transactions into organised accounts. It can be done through two ways: a single-entry system and a double-entry system. A business organisation can record its financial transactions using either of the entry system of Bookkeeping. The single-entry system is simple and less time consuming while Double entry system completely records the transactions which need substantial effort and time. 

Single-Entry

A single entry system is an accounting method in which each accounting transaction is recorded with only one entry in the accounting records. It is the oldest method of maintaining financial records in which an entry is made for every financial transaction. 
This type of bookkeeping is not for large and complex organisations. It does not track various accounts like inventory, accounts payable, and accounts receivable. We can use single-entry bookkeeping to calculate net income, but we cannot use it to prepare a balance sheet and track the asset and liability accounts. Single-entry bookkeeping is majorly used by small businesses with less volume of work.

Advantages of Single-Entry System

  1. It is simpler and less expensive to maintain as compared to the Double Entry System 
  2. No professional degree is required for maintaining a single entry system 
  3. This type of accounting is preferable for new and small companies where financial transactions are less in number
  4. With a daily cash receipt summary, the system captures the daily flow of income and expenses

     

Double-Entry

In double-entry bookkeeping, every transaction has a dual aspect. Every transaction affects two accounts at the same time, one account is debited while the other one is credited.
 
An example of a double-entry transaction would be, that Mr X has purchased goods of Rs. 50,000 for cash from ABC Corp. On one hand, he has received goods and on the other hand, the cash is given to ABC Corp. As per the Double Entry system, we will record both the aspects of a single transaction, i.e., the increase in goods with the decrease in cash.

The double entry system is also accepted by Generally Accepted Accounting Principles (GAAP) due to a dual effect. Every transaction is recorded in a comprehensive manner. It begins with the preparation of source documents, then moves to the diary, ledger, and trial balance, and finally to the preparation of financial statements.

Advantages of Double Entry 

  1. It is a scientific method of recording transactions as it assists in reviewing all accounting documents.
  2. The effects of the transactions are recorded as both the personal and impersonal accounts are maintained under the double-entry system.
  3. Errors can be checked and rectified easily.
  4. As both the accounts are debited and credited, the accounts are automatically reviewed which helps in preventing and detecting frauds. 
  5. We can know the financial status of the company at the end of the year by preparing a profit and loss account and a balance sheet.
     

However, when compared to a single entry system, the double-entry system is the more effective technique for recording accounts. In today’s times, double-entry bookkeeping is the most common and effective data entry method. As per Generally Accepted Accounting Principles (GAAP), all big organisations use double entry systems instead of single-entry systems to keep track of its finance in all companies.

 


Last Updated : 12 Apr, 2023
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