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 Accounts
Receiver is Debit
Giver is Credit
Real Accounts
What Comes In Debit
What Goes Out Credit
Nominal Accounts
Expenses are Debit
Incomes are 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
Cash A/cDr. 50,000
To Capital A/c50,000
Real A/c
Personal A/c
Debit what comes in;
Credit the giver(Owner)
Goods Purchase A/cDr. 20,000
To cash A/c20,000
Real A/c
Real A/c
Debit what comes in;
Credit what goes out
Goods Purchase A/cDr. 25,000
To B A/c25,000
Real A/c
Personal A/c
Debit what comes in;
Credit the giver
Freight A/cDr. 1,000
To cash A/c1,000
Nominal A/c
Real A/c
Debit all expenses
Credit what goes out
C A/cDr. 15,000
To Sale A/c15,000
Personal A/c
Real Account
Debit the receiver
Credit what goes out
Cash A/cDr. 30,000
To Sale A/c30,000
Real A/c
Real A/c
Debit what comes in;
Credit what goes out
Computer A/cDr. 10,000
To cash A/c10,000
Real A/c
Real A/c
Debit what comes in;
Credit what goes out
Cash A/cDr. 8,000
To commission A/c8,000
Real A/c
Nominal A/c
Debit 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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