Systems and Bases of Accounting

Systems of recording transactions

• Single Entry System — an incomplete, unscientific way of recording where only personal accounts (and sometimes cash) are maintained; real and nominal accounts are ignored. It is cheap and simple but does not allow a Trial Balance to be prepared or errors to be located easily, and is used mainly by very small traders.
• Double Entry System — the scientific system where every transaction has a two-sided effect: a debit in one account and an equal credit in another. Because both sides are always recorded, a Trial Balance can be prepared as an arithmetic check, and the true profit/loss and financial position can be ascertained. This is the system this entire course is built on and the one all Indian statutes require companies to follow.

Bases of accounting — the point in time at which a transaction is recognised in the books:

• Cash Basis — revenue is recorded only when cash is actually received, and expenses only when cash is actually paid. Simple, but does not match revenues to the period they relate to; commonly used by professionals and small clubs. …