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Types Of Accounting Systems

A business needs to determine the type of bookkeeping system that will be usedfor recording their business transactions.Many small businesses start out using the single entry system.

Single Entry System

The single entry system is an "informal" accounting bookkeeping system where a user of this systemmakes only one entry to enter a business financial transaction.It generally includes a daily summary of cash receipts and a monthly record of receipts and disbursements prepared using worksheets.

A checkbook, for example, is a single entry bookkeeping system where one entry is made for each deposit or check written.

Receipts are entered as a deposit and a source of revenue. Checks and withdrawalsare entered as expenses. If a manual system is used, in order to determine your revenues and expensesyou have to prepare worksheets to summarize your income and categorize and summarizeyour different types of expenses. Bookkeeping software and spreadsheets are also available to do this for you.

The emphasis of this system is placed on determining the profit or loss of a business.

It got its name because you record each transaction only once as either revenue (deposit) or asan expense (check). Since each entry is recorded only once, debits and credits the recording methodrequired for the double entry system are not used to record a financial event.

Double Entry System

The double entry system is the standard system used by businesses and other organizations to record financial transactions. Since all business transactions consist of an exchange of one thing for another, double entry bookkeeping using debits and credits, is used to show this two-fold effect. Debits and credits are the device that provide the ability to record the entries twice and areexplained in more detail later in this tutorial.

The double entry system also has built-in checks and balances. Due to the use of debits and credits, the double-entry system is self-balancing. The total of the debit values recorded must equal the total of the credit values recorded.

This system, when used along with the accrual method of accounting, is a complete accounting system andfocuses on the income statement and balance sheet.

It got its name because each transaction is recorded in at least two places (accounts) using debits and credits.