Double-entry accounting system, single-entry accounting system, debits, credits

Double-entry accounting involves recording two entries for every transaction, with both a debit (DR) and a credit (CR) recorded simultaneously. This method maintains both Balance Sheet and Income Statement accounts, providing enough information to prepare a complete set of financial statements.

 

On the other hand, single-entry accounting records only one entry per transaction, either a debit or a credit. It only maintains Balance Sheet accounts, resulting in insufficient information to prepare a complete set of financial statements.

Debits and credits are used in accounting to show increases or decreases in account balances, following specific rules.
• Debits typically increase asset and expense accounts but decrease liability, owner’s equity, and revenue accounts.
• Credits increase liability, owner’s equity, and revenue accounts but decrease asset and expense accounts.

Double-entry accounting system enables accurate tracking of financial transactions and assists in identifying errors during the reconciliation process. Single-entry accounting, on the other hand, records transactions only once and is less resilient, which is better suited for smaller businesses with simpler financial requirements. However, it doesn't offer the comprehensive understanding provided by the widely used double-entry accounting system, which is commonly used in larger businesses and for financial reporting purposes.