Single Entry System

Introduction

Single Entry System is an incomplete ‘double entry system’. In case of double entry system of book- keeping both the aspects of every transaction are recorded. In this system, the first entry is made to the debit of an account, and the second entry to the credit of second account. However, in case of single entry system, the business houses for their convenience and more practical approach ignore the strict rules of double entry system. The users of this system maintain only the essential records. In other words, it is a system which may not keep some books of subsidiary records and some ledger accounts which otherwise are kept in case of double entry system. In fact, single entry system may consist of double entry in respect of certain transactions such as cash paid to creditors, cash received from debtors, etc, and single entry in regard to certain events and transactions such as cash sales and purchases and expenses incurred on purchase of fixed assets. Further, the users of this system may pass no entry in respect of certain transactions, for instance, depreciation, bad debts, etc.

According to a Dictionary of Accountancy by Kohler, “A system of book-keeping in which as a rule only records of cash and of personal accounts are maintained, it is always incomplete double entry varying with the circumstances.” Thus, under the so-called single-entry system both the aspects of business transactions and events are not recorded and, therefore, this may be defined, “as any system which is not exactly the Double Entry System”. Under the single-entry system usually a cash book and personal accounts are maintained.

Salient Features

From the foregoing discussion, the following salient features have emerged about the single-entry system:

a) Under this system usually a cash book and personal accounts are maintained.

b) Usually real and nominal accounts are not kept in this system.

c) The cash book maintained, under this system usually mixes up both the personal and the business transactions.

d) In this system, it is seen quite oftenly that in order to collect the necessary information one has to depend on original vouchers. For example, the amount of credit purchases may have to be found out on the basis of original invoices received from the suppliers in case the figures are not readily available.

e) This system can be applied only in case of sole trader or partnership concerns. Limited companies, because of legal provisions, cannot keep books on single entry system.

f) It is adopted as per individual requirements and convenience by the business houses. Therefore, the system may differ from firm to firm, which brings lack of uniformity in accounting books.

Disadvantages And Advantages Of Single Entry System

Disadvantages

a) It is an incomplete system of accounting since this system does not record both the aspects of business transactions and events. Because of this limitation, one cannot prepare trial balance and, thus, the arithmetical accuracy cannot be easily checked in the absence of a trial balance. This increases the chances of misappropriations and frauds as compared to the Double Entry System of book-keeping

b) This system lacks uniformity since the businessmen apply it as per their individual requirements and conveniences.

c) It becomes difficult to valuate assets in case a businessman wanted to sell his business.

d) In the absence of complete information for sales, purchases and other expenses, the trading and profit and loss account cannot be prepared. Hence, rate of gross profit on sales and the true profit or loss position cannot be known.

e) As there are no real accounts, the balance sheet cannot be drawn up to give a correct picture of the financial position of the business on a particular date.

f) This system hampers comparison, planning, and sound decision-making because the system does not provide accurate figures about the performance of the business and its financial position.

Advantages

a) This system is more economical than double entry system and hence, suitable for small business firms.

b) This system is also suitable to those firms which have more cash transaction and a large number of personal accounts.

c) This system does not require specialised knowledge of accounting since only selected books of accounts are kept under it.