CHAPTER 4

PROCESS AND BASE OF

ACCOUNTING
 Systems of Accounting

The system of recording transactions in the

books of accounts are generally classified into
two types;
1. Double Entry System
2. Single Entry System
 Systems of Accounting
Double entry system

Double entry system is based on the principle of

“Dual Aspect” which states that every transaction
has two effects, viz receiving the benefit and giving of
a benefit.
This is a complete, accurate and reliable system
of accounting as it records both the aspects of
transactions in the books of accounts.
 Systems of Accounting

Principles of Double entry system

● There are two aspects for every transaction - debit

and credit (receiving aspect and giving aspect).

● Both the aspects should be recorded in the books of

accounts.

● For every debit there must be a corresponding credit

and vice versa.
 Systems of Accounting
Single entry system

It is not a complete system of accounting.

It does not record two-fold effect of each and every
transaction.
Instead of maintaining all the accounts, only
personal accounts and cash book are maintained under
this system.
Under this system, in some transactions both the
aspects may be recorded and for some others, only one
aspect may be recorded.
 Bases of Accounting

From the point of view the timing of recognition of

revenue and costs, there are two basis of accounting;

1. CASH BASIS
2. ACCRUAL BASIS
 Basis of Accounting
Cash Basis

Recording of transaction is made only when cash is

received or paid.
Under this system, incomes are not recorded unless
they are received in cash and expenses are recorded
only when they are paid in cash.
Ex. Sale of goods on credit in the month of January
would not be recorded in January, it will record when the
payment for the same is received.
 Basis of Accounting
Accrual Basis
Recording of transaction in the same period
whether paid or not.
Under this basis, income are recorded when they
are earned or accrued, irrespective of the fact
whether cash is received or not. Expenses are
recorded when they are incurred.
Credit sales will be included in the total sales of
the period.
Ex. Sale of goods on credit in the month of January
would be recorded in January itself.
 Hybrid or Mixed Basis of Accounting

This basis of accounting is the mixture of cash

basis and accrual basis. Under this basis, revenues
and assets are recorded on cash basis whereas
expenses and liabilities are recorded on accrual
basis.