As the owner of a business start-up, knowledge of the different types of accounting systems can help you decide the type of accounting system you might choose for your business transactions. He can also get information related to the different accounting methods that are being adopted worldwide. Actually, there are two types of accounting systems, namely single-entry accounting systems and double-entry accounting systems.
Single entry accounting systems. If the type of business you have just started falls into the small scale category, the single entry bookkeeping system would come in very handy. This type of system keeps a record of business transactions related to cash disbursement, cash receipt, purchases, and sales. This type of system is more of an informal system suitable for small business transactions. The bookkeeper will generally use this system to maintain a daily summary of cash receipts and payments and also a monthly summary of cash receipts and payments. In a single-entry accounting procedure, each transaction will affect only one account. In the case of a double entry transaction, each and every transaction would have an entry in both accounts.
If there is a sale of a particular item, the cash receipt or cash deposit account will only be updated with the amount received. The corresponding entry in a sales account will not be made in the single entry accounting system.
Therefore, it does not provide the complete financial situation of the different systems of the company. If you want a detailed accounting of the different systems involved in business transactions, you can go for a double entry system.
Double entry accounting system. This is the type of system most used by the bookkeeper or an accountant in any business organization. The bookkeeper uses this system to maintain complete accounting details of business transactions. This system also introduces the concept of debit and credit. Since there are many accounting systems in a company, a debit entry in one of the accounting systems will usually be accompanied by a credit entry in another accounting system or in more than one accounting system. Similarly, a bookkeeper may be required to make more than one debit entry for a single credit entry. The financial performance of a company can be clearly determined based on accounting details obtained from double-entry accounting systems.
Basically, there are two accounting methods. One is the manual method of accounting and the other is the computerized method of accounting.
Manual bookkeeping is the oldest form of bookkeeping in which the bookkeeper will use a journal or ledger to record the different accounting entries related to business transactions. Small business owners still prefer the manual method of bookkeeping as it is inexpensive and is suitable for maintaining less complex business transactions.
Computerized accounting helps the bookkeeper to do the accounting of complex business transactions in a much easier and quicker way. An accounting software system is generally used to make accounting entries. The advantage that this system has over the manual accounting system is the ease of generating reports and performing calculations. Complex calculations can be performed accurately and quickly.
