Interlocking and integrated System Difference

Interlocking and integrated System Difference

Under interlocking system a company maintains two set of accounts, such record is maintain to facilitate costing department for making different costing analyses, where in case of integrated accounting system only one set of account is maintained and same set used by finance and cost department.

1.    Resources & Cost

Interlocking system is more costly because two set of accounts are maintained. In fact such maintenance double the cost of book keeping .These cost include stationary cost, account department staff cost.

2.    Duplication of Work

In Interlocking system two set of record is maintained, and such maintenance requires duplicate records, such duplication can lead to many confusion within organization. It means interlocking system is more complex than integrated system.

3.    Analyses & Costing

Interlocking system was introduced to facilitate cost analyses and management support. Such system does not halt the financial reporting process. It means that interlocking system offer more detailed analyses of cost.

4.    Manual Concept

Interlocking system is manual book keeping concept and has no relevance in computerized environment, where integrated system is the only option. In computerized environment cost accountant and financial accountant can extract required reports.

5.    Complexity

Interlocking system is more complex in nature, because it is not easy to maintain and handle two set of accounts, where integrated system easy to manage & handle.

Advantages of Double Entry

Advantages of Double Entry

Advantages of double entry system can be explained in terms of standard rules, mistake identification, accurate reporting.

1.    Standard Rules

First advantage of double entry system is its standard rule of processing. In double entry system information is processed through standard rules. These rules are commonly known as debit & credit rules.

2.    Mistake Identification

Second advantage of double entry system is it’s in built facility of identifying some mistakes i.e. mistakes with single effect. For example only one aspect is recorded, or one side (debit or credit) is wrongly recorded.

3.    Financial Result

Third advantage of double entry system is its accurate reporting of financial results. Double entry is deemed to produce accurate financial result, if appropriately applied.

4.    Large Scale Organization.

Fourth advantage of double entry system is management of large scale organization. In small organization system, record can produce accurate results. However, in case of large scale organization double entry system is a must requirement.

Limitations of Double Entry System

Limitations of Double Entry System

Limitations of double entry system can be explained in terms of high cost, limited scale operation, technical job, not error free.

1.    High Cost Option

First limitation of double entry system is its high cost. Double entry system involves number of cost i.e. cost of experience manager, cost of accounting software, stationary cost etc. Thus this system is not recommended /feasible for small businesses.

2.    Does not Suit Small Scale Organization

Double entry system does not suit to a limited operation, because it involves a lot of costs, and small scale organization cannot afford such system. Thus double entry system on one side is a basic requirement for both small and large organization, However , only large organization can afford this system.

3.    Complex System

Third limitation of double entry system is its complexity. Double entry system can only be handled by an experience manager; otherwise, it can produce horrible results. An experienced and technical sound accountant would be required to maintain the the double entry system.

4.    Not Error Free

Double entry system cannot be considered a 100% error free option. There are number of mistakes which cannot be detected by the double entry system. This system can only detect single impact mistakes (which effect one side of trial balance).

Limitations of Single Entry System

Limitations of Single Entry System

Limitations of single entry system may be explained in terms of lack of structure, lack of standard rules, lack of reliablity, lack of accaptablity etc. These limitations have been explained below

1.    Lack of  Structure

Single entry system is not a structure system; rather it is a practice of people to maintain the record in accordance with their convenience & knowledge. Thus this single entry system does not have any proper structure.

2.    Lack of Standard Rules

Single entry system lack standard rules. In fact single entry system is no system, rather a self maintained book keeping. Small businessman keep the record as per their understanding knowledge and convenience. Thus single entry record of every businessman vary from other businessman.

3.    Lack of Reliability

Single entry System cannot produce accurate results. Single entry system is not based on principles and therefore no reliance can be placed on the information produce by the single entry system.

4.    No Acceptability

Single entry system is not an acceptable or recognized system. This is not an standard system, and every organization maintain such system according to his own choice and formats.

5.    Financial Reporting not Possible

Financial results cannot be easily calculated from single entry system. A lot of effort and assumption are required for preparing financial statement, even then, those financial statement are not reliable.