As the owner of a newly started business company, knowledge of the different types of accounting systems can help you decide the type of accounting system to choose for your business transactions. You can also get information related to the different accounting methods that are being adopted globally. 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 accounting system would be very useful. 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 accountant will normally use this system to keep 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 status of the various business systems. If you want a detailed accounting of the different systems involved in business transactions, you can opt for a double entry system.
Double entry accounting system. This is the type of system most commonly used by the bookkeeper or accountant in any business organization. The accountant uses this system to maintain complete accounting details for business transactions. This system also introduces the concept of debit and credit. Since there are many accounting systems in a business, a debit entry in one of the accounting systems will generally be accompanied by a credit entry in another accounting system or more than one accounting system. Similarly, an accountant may be required to make more than one debit entry for a single credit entry. The financial performance of a business can be clearly determined on the basis of accounting details obtained from double entry accounting systems.
There are basically two methods of accounting. One is the manual method of accounting and the other is the computerized method of accounting.
Manual accounting is the oldest form of accounting in which the accountant will use a journal or general ledger to record the different accounting entries related to business transactions. Small business owners still prefer the manual method of accounting as it is inexpensive and suitable for maintaining less complex business transactions.
Computerized accounting helps the bookkeeper to keep the accounting of complex business transactions much easier and faster. Generally, an accounting software system is used to make the 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.