Accounting has many definitions. The simplest definition of accounting is that it is the study of maintenance and recording of financial data and transactions of a firm. To maintain a healthy financial state of an organization, it is necessary to keep a right track of transactions that an organization makes.
However, accounting has developed with the help of modern technology. Today, accounting is used in two different ways, that is, traditional and online ways. This conventional method is the maintenance of all financial records in a separate hard drive, but online or cloud accounting method is the maintenance of these records in a virtual storage system with the help of internet.
Another section of accounting which has successfully developed is business transaction with the help of single and double data entry systems. However, to know more about what single and double data entry systems are, you need to have a piece of significant knowledge on business transactions.
To know about single and double entry systems and their process along with their purposes, continue reading.
What is a business transaction?
The action of recording financial transaction with a third party organization is known as a business transaction. It is one of the steps upon which accounting stands. Furthermore, business transactions can be divided into two broad categories, namely: exchange and non-exchange transactions. These two categories are broadly defined below:
- Exchange transaction:
The process of physical exchange of goods, services and material is known as exchange transactions. It mainly involves buying, selling, collection of receivables, and payment of different accounts.
- Non-exchange transaction:
The process including financial transaction for an institution’s betterment or development with the help of a third party organization is known as a non-exchange transaction. This process mainly involves mending different pieces of equipment, hiring employees, etc.
However, a business transaction is mainly conducted and recorded via a well-known yet straightforward method that is, data entry. Data entry is divided into two broad categories based on the number of people entering data. They are:
- Single data entry
- Double data entry
These are simple methods, yet they are one of the most used systems in today’s business scenario. Henceforth, to get a more profound knowledge about how business transactions are usually performed, you need to have a better understanding of how these systems work and how they are related to the business.
However, to get a better understanding of these two processes, you need to know what data entry is all about since these two processes involve everything related to data entry.
What is data entry?
The process when a person manually inputs all financial information in a computer or other electronic gadget is known as data entry. Data entry, as said earlier, is broadly divided into two broad categories: single and double data entry.
Single and double data entry is one of the simplest methods, yet they need excessive hard work as a person needs to enter data at a very fast pace. It is said that a person needs to type 50-80 words in a minute, which is quite a speed!
Now we are going to know about the process and purpose of these two types of data entry systems.
What is a single data entry?
Single data entry system has a lot of definitions; however, this definition is one of the simplest ones to give you a better view about this system. When a single person enters all the financial data along with other information of an organization and manages them with the help of a database management system, it is known as single data entry.
The system which records only one aspect of the transaction is known as a single data entry system. Some cases of single data entry are quite similar to double data entry, where more than one aspect of the transaction is recorded.
In the present day scenario, people tend to prefer double data entry to single data entry since they consider single data entry as a defective, unfinished, incorrect, unempirical and disorganized style of keeping an account.
In the earlier days, an organization used to depend upon single data entry but nowadays, double data entry is one of the most common and advanced job that an organization offers.
Today, even though organizations prefer double data entry systems to single data entry system, there are certain benefits of this scheme that you should know. Hence, listed below are certain benefits of single data entry system:
- Simple and easy process of recording:
For single data entry, you do not need any high-level knowledge of accounting. It includes recording mere transactions, and hence, this process can be maintained by any businessman who has a basic knowledge of mathematics.
- Cost-effective:
Single data entry is a cost-effective process compared to double data entry. You do not need a large number of journals since the transactions maintained in this book are quite simple and easy to maintain. It is also a cost-effective process because you do not need to hire an accounting professional to manage your company’s economic records.
- Mainly used for small businesses:
Since this process does not include maintaining a large financial transaction of a company, hence, this system is appropriate for small companies.
- Time-saving process:
Since the process does not include maintaining large business transactions and keeping many journals and ledgers, hence it is a time-saving process.
- Profit and loss can be figured out quite quickly:
Finding out profit and loss of a company is quite comfortable with the help of single data entry methods. Profit and loss can be easily assessed at the end of a balance sheet.
In spite of all these benefits, the only disadvantage of single data entry methods is that the outcomes may not always be accurate.
Now you know what single data entry system is all about, so let’s take a look at what double data entry system is.
What is double data entry?
The recording and management of both debit and credit change are known as double data entry. The system in which one changes are credited and the other one is debited with a balanced amount is known as double data entry system.
According to the Italian author of Double Entry System, Locus Pacioli, double data entry system is the only scientific method that is accepted worldwide. Due to its well-defined rules and regulations, it is considered the stable entry system among the two.
Double data entry system goes through specific processes, and they are listed below:
- Journal:
The book in which all the transactions are recorded is known as a journal. It is the process of this system.
- Ledger:
The book in which all the recorded data are sorted and kept in an organized manner is known as a ledger. The maintenance of all these records is considered as the second process in double data entry.
- Trial balance:
In the third process, the accuracy of all these recordings is checked. This process is known as trial balance.
- Final accounts:
This is the final process of double data entry system, and in this process, all the recordings are checked and organized to create a yearly record.
However, there are certain benefits of this process. So, listed below are the profits of double data entry system.
- Systematic and scientific:
As said earlier, due to a set of rules and regulations on which double data entry system is based, this system is considered as both a systematic and scientific process of account maintenance. Furthermore, in the double data entry system, recordings are kept in a well-organized way, which helps in figuring out all the data in much less time.
- Accuracy:
Since this system is based upon double entry principle that is, the total credit value should be equal to the total debit value, it helps to maintain a proper accuracy of all the financial records of an organization.
- Proper determination of profit or loss:
As said earlier, this system is based upon double entry rule; hence, it is easier to find out the profit or loss details made by a company.
If the debit rate is higher than the credit rate, then it can be said that a company is making profit, but if the credit rate is higher than the debit rate then it is considered that an organization is running at a loss.
- Suitable for both developing and large firms:
Since the accuracy level in a double data entry system, hence it can be used both in developing as well as large firms since large firms tend to have substantial financial records and for their maintenance, one must use this method.
- To find out the financial position of an organization:
At the end of a year, each organization prepares a balance sheet to find out their financial stability. If a company follow this system of data keeping for obtaining their financial data while making a balance sheet, then they will likely get the correct result of their economic constancy.
- Helps in better decision making:
The economic stability of a company can be correctly found with the help of this double data entry system that allows the company to make better decision making which includes investing or making use of their finance.
The only disadvantage of double data keeping is that it is a time consuming and a complicated process which takes an ample amount of a company’s precious time.
What is the difference between single and double data entry methods and systems?
Probably you have understood the possible differences between single and double data entry methods, and the process involved in these systems. Yet for a better understanding of the differences, listed below are specific points on which these two systems differ:
- Number of books:
While single data entry system needs only one book for recording and maintaining all financial transactions of a company, double data entry system needs a journal for recording the business data and a ledger for maintaining the accuracy of the data.
- Time:
Single data entry method is time-saving due to the lesser number of books involved, double data entry method is time consuming due to the number of the process involved in it.
- Cost:
The total cost that is invested in single data entry method is quite less compared to double data keeping method. Single data entry method involves maintaining a single book, but you need to keep a journal a ledger when it comes to double data entry system.
Furthermore, you also need to hire an accounting professional to maintain a company’s financial transactions when it comes to double data entry method since one needs to possess excellent accounting knowledge while dealing with this system.
- Generating the profit and loss rate of an organization:
While the process of figuring out about the profit or loss of a company is quite easy in case of single data entry process since all you need to do is to check the result of a balance sheet through the possibility of getting an inaccurate result is quite high.
However, when a company uses the double data entry process, it is quite possible that the profit and loss rate of the organization will be entirely exact.
- Type of firm these systems are used in:
While the single data entry methods are used in small firms, double data entry process is usually used in developing or large firms with substantial financial transaction records.
- The planning of a trial balance sheet:
The process of trial balance does not occur in a single data entry method, but it is the third step in double data entry system.
Saving and keeping a record of all money related activities helps to secure a person’s or organization’s future. This line explains the importance of maintaining a proper record of the financial transactions of a company.
Author Bio:
Nancie L. Beckett is a well-known associate professor from Bentley University. She has experience in teaching, and she is an MS in accounting and is a reputed tutor at some well recognized online website. She is also a blogger and works on educational blogs, which have helped a considerable number of students.