The double entry system is an accounting system that is used and accepted worldwide for the maintaining of accounts. The double account system, on the other hand, was developed specifically for public utility firms that spent a large sum of capital on the purchase of fixed assets. The double entry system and double account system are often confused by many to be the same. The article offers a clear explanation of both and shows the differences between double entry system and double account system.
What is Double Entry System?
The double entry system is the bookkeeping and accounting system that is currently used in many organizations. The double entry system seeks to satisfy the underlying accounting equation,
Assets = Liabilities + Equity
The double entry system, as its name suggests, operates on the basic fact that any transaction has an equal yet opposite effect in two accounts related to the transaction. The double entry system creates two entries on these accounts and these entries are recorded as a debit in one account and credit in another. As one account is debited and another is credited by an equal amount , therefore, all debits and credits should be equal . This results in the accountant being able to balance the company’s trial balance. However, the trial balance balances only if entries have been entered accurately. The benefits of using a double entry system include being able to show accurately how profits and losses are calculated in the income statement and to show all assets and liabilities on the balance sheet. The double entry system also makes it much easier to find any errors made when entering transactions into the books, as any accounts that do not balance indicate that an error has been made in the entry.
What is Double Account System?
Double account system is a system that was developed in the UK and was used by public utility firms and railway enterprises. Most utility firms that control water, electricity, railway, gas, etc. are monopolies in the economy as sole providers of these services. Utility firms are very much capital intensive and require a large investment in fixed assets to be made. Since the capital for these fixed assets is raised by issuing shares and debentures to the public, these utility firms were required to show clearly in the balance sheet the amounts of fixed capital that has been raised. For this purpose, the double account system was introduced for public utility firms. The double account system does not maintain accounts and is rather used to present financial information in a clear manner to the public. The main feature of a double account system is that the balance sheet is divided into two parts:
i). The receipts and expenditure of capital: clearly showing the total fixed capital raised and how these funds were invested in purchasing fixed assets.
ii). The general balance sheet: showing all other liabilities and assets held by the firm.
What is the difference between Double Entry System and Double Account System?
The double entry system and double account system are often confused to be the same. However, these two accounting systems are unique and different from one another. The double entry system is the accounting method used by many corporations worldwide in maintaining their accounts. On the other hand, the double account system was introduced specifically for the use of public utility firms. As its name suggests the double account system divides its balance sheet into two sections: the capital account and general balance sheet, whereas under the double entry system only one balance sheet is created. Furthermore, while the double entry system is used to maintain accounts , the double account system was used merely to present accounts clearly, especially to clearly show the public how the capital obtained from them was spent on the purchase of fixed assets.
Summary:
Double Entry System vs Double Account System
• The double entry system seeks to satisfy the underlying accounting equation, Assets = Liabilities + Equity.
• The double entry system, as its name suggests, operates on the basic fact that any transaction has an equal yet opposite effect in two accounts related to the transa ction. As one account is debited, another account is credited by an equal amount.
• Double account system is a system that was developed in the UK and was used by public utility firms and railway enterprises.
• Utility firms are very much capital intensive and require a large investment in fixed assets to be made. Since the capital for these fixed assets is raised by issuing shares and debentures to the public, these utility firms were required to show clearly in the balance sheet the amounts of fixed capital that has been raised.
• While the double entry system is used to maintain accounts, the double account system was used merely to present accounts clearly, especially to clearly show the public how the capital obtained from them was spent on the purchase of fixed assets.
Further Reading:
- Difference Between Double Entry and Single Entry