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Describe about systems of accounting.
Accounting is a process of making a financial report which consists of business transactions and preparing income statements, profit and loss accounts and balance sheets. The system which maintain these financial records are known as accounting system.
There are different types of accounting systems, each has its own functionality. The main aim is to manage the financial activities (revenue, expenses and liabilities).
Accounting systems can be maintained manually and are computerised. Manually accounting is difficult to maintain and chances for miscalculations and errors are high, whereas computerised accounting is easier to maintain, is accurate and saves lot of time.
Types of accounting systems are −
- Single entry system.
- Double-entry system.
- Manual accounting system.
- Computerised accounting system.
System of accounting for recording business transactions are explained below −
Cash system of accounting − As the name suggest, only cash based transactions are recorded. No outstanding payments, dues are recorded in cash system of accounting. Government maintain accounts in cash only.
Accrual system of accounting − In this, both cash and credit transactions are recorded. Commercials, non-trading business will follow this system.
Single entry system − In this, only personal and cash transactions are recorded. These are incomplete, inaccurate.
Double entry system − In this, both credit and debit transactions are recorded. These are commonly used in bookkeeping.
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