Accounting – Systems

There are two systems of accounting followed –

●      Single Entry System

●      Double Entry System

Single Entry System

Single entry system is an incomplete system of accounting, followed by small businessmen, where the number of transactions is very less. In this system of accounting, only personal accounts are opened and maintained by a business owner. Sometimes subsidiary books are maintained and sometimes not. Since real and nominal accounts are not opened by the business owner, preparation of profit & loss account and balance sheet is not possible to ascertain the correct position of profit or loss or financial position of business entity.

Double Entry System

Double entry system of accounts is a scientific system of accounts followed all over the world without any dispute. It is an old system of accounting. 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.

Assets = Liabilities

If we give something, we also get something in return and vice versa.

Rules of Debit and Credit under Double Entry System of Accounts

The following rules of debit and credit are called the golden rules of accounts:

Classification of accountsRulesEffect
Personal AccountsReceiver is DebitGiver is CreditDebit=Credit
Real AccountsWhat Comes In DebitWhat Goes Out CreditDebit=Credit
Nominal AccountsExpenses are DebitIncomes are CreditDebit=Credit


Mr A starts a business regarding which we have the following data:

Introduces Capital in cashRs50,000
Purchases (Cash)Rs20,000
Purchases (Credit) from Mr BRs25,000
Freight charges paid in cashRs1,000
Goods sold to Mr C on creditRs15,000
Cash SaleRs30,000
Purchased computerRs10,000
Commission IncomeRs8,000

Journal entries for above items would be done as –

S.No.Journal EntriesClassificationRule
1Cash A/cDr. 50,000To Capital A/c50,000Real A/cPersonal A/cDebit what comes in;Credit the giver(Owner)
2Goods Purchase A/cDr. 20,000To cash A/c20,000Real A/cReal A/cDebit what comes in;Credit what goes out
3Goods Purchase A/cDr. 25,000To B A/c25,000Real A/cPersonal A/cDebit what comes in;Credit the giver
4Freight A/cDr. 1,000To cash A/c1,000Nominal A/cReal A/cDebit all expensesCredit what goes out
5C A/cDr. 15,000To Sale A/c15,000Personal A/cReal AccountDebit the receiverCredit what goes out
6Cash A/cDr. 30,000To Sale A/c30,000Real A/cReal A/cDebit what comes in;Credit what goes out
7Computer A/cDr. 10,000To cash A/c10,000Real A/cReal A/cDebit what comes in;Credit what goes out
8Cash A/cDr. 8,000To commission A/c8,000Real A/cNominal A/cDebit what comes in;Credit all incomes

It is very clear from the above example how the rules of debit and credit work. It is also clear that every entry has its dual aspect. In any case, debit will always be equal to credit in double entry accounting system.

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