Book-Keeping and Accountancy · Ch 1 — Introduction to Book-Keeping and Accountancy
Systems and Bases of Book-Keeping
Systems and Bases of Book-Keeping
Once a business decides to keep accounts, it must choose (a) a system for recording transactions, and (b) a basis for deciding WHEN a transaction is recognised in the books. This section previews both — the full mechanics of the Double Entry System are covered in the next chapter.
Systems of Book-Keeping
Single Entry System
An incomplete, unscientific method of recording transactions in which only a partial or one-sided record is kept — typically a cash book plus some personal accounts of debtors and creditors — without following the full double-entry principle.
Double Entry System
A complete and scientific system of recording every transaction on the principle that every transaction has two aspects — a receiving aspect (debit) and a giving aspect (credit) — both of which are recorded, keeping the books permanently in balance.
The Single Entry System is cheap and simple but does not allow the accuracy of the books to be verified, and it cannot, by itself, produce a reliable Trading and Profit and Loss Account or Balance Sheet. The Double Entry System, by recording both aspects of every transaction, is self-checking (through the Trial Balance) and forms the basis of the whole of modern accounting — it is the system this subject builds on from Chapter 2 onward.
Bases of Accounting
Cash Basis of Accounting
A basis under which income is recorded only when cash is actually received, and expenses are recorded only when cash is actually paid — irrespective of the period to which they relate.
Accrual (Mercantile) Basis of Accounting
A basis under which income is recorded when it is earned (whether or not cash has been received) and expenses are recorded when they are incurred (whether or not cash has been paid).
| Basis | Cash Basis | Accrual (Mercantile) Basis |
|---|---|---|
| When income is recorded | Only when cash is actually received | When it is earned, cash received or not |
| When expense is recorded | Only when cash is actually paid | When it is incurred, cash paid or not |
An incomplete, unscientific method of recording only a partial or one-sided record of transactions, without following the full …
A complete, scientific system that records both aspects — debit and credit — of every transaction, keeping the books pe …
A basis under which income and expenses are recorded only when cash is actually re …
A basis under which income is recorded when earned and expenses when incurred, irrespective of actual cash …