Single Entry System of
Bookkeeping
A single entry system of bookkeeping is where the transactions of the
business affect only one account, i.e. only one account’s value will
decrease or increase based on the transaction amount. Under this system,
a cash book is prepared that shows the payment and receipts of the cash
transactions.
Under the single entry system of bookkeeping, the cash book and personal
accounts of creditors and debtors are maintained, and no other ledger is
maintained. Every transaction of the business is recorded in the cash book
without applying the principles of the double-entry system of bookkeeping.
The nominal accounts and real accounts are not recognised under this
system.
Under this system, the records related to taxes paid, account payable,
cash, receivables and few other accounts are maintained. Usually, small
businesses prefer the single-entry bookkeeping system as it is easy to
maintain and has minimum requirements.
Features of Single Entry System of
Bookkeeping
The following are the features of the single entry system:
Original Vouchers
The original vouchers play an essential role under this system. They help
gather information such as amount, date of transaction, discount (if any),
parties, etc.
Cash Book
Under the single entry system of bookkeeping, the cash book is maintained
for recording the cash receipts and payments of the business during a
given period. Only one cash book is maintained in which both the private
and business transactions are included.
Personal Account
The single entry system maintains the personal accounts of all the creditors
and debtors to determine the amount of credit purchases and sales during
a given period. The personal accounts are recorded, whereas the real and
nominal accounts are ignored under this system.
No Fixed Rules
The single entry system of bookkeeping has no fixed set of rules or
principles for determining the profit and preparing the different financial
statements. Thus, it is easy to maintain. However, there may be variations
in its application from one business to another since there are no fixed
rules.
Estimation of Profit or Loss
The profit or loss of the business is estimated out of the information
available at hand. Thus, the exact profits or losses are not ascertained. The
profit or loss are estimates. Thus, the financial position as a whole of the
business cannot be ascertained.
Final Accounts
It is tough to prepare the final accounts in the single entry system of
bookkeeping as the real and nominal accounts information are not
available. The figures of liabilities and assets are calculated from the
information at hand, but they are estimates. Hence, the Statement of Affairs
is prepared instead of the Balance Sheet.
Single Entry System Example
The oldest form of single-entry bookkeeping system is through the cash
book. An example of the cash book entries are given below:
Date Description Income Expense Balance
01/06/2021 Balance b/d Rs. 50,000 Rs. 30,000 Rs.20,000
05/06/2021 Wages paid Rs. 5,000 Rs. 15,000
10/06/2021 Electricity bill paid Rs. 5,000 Rs. 10,000
11/06/2021 Stock Purchase Rs. 9,000 Rs. 1,000
25/06/2021 Sales Rs. 30,000 Rs. 31,000
28/06/2021 Bank Deposit Rs. 15,000 Rs. 46,000
30/06/2021 Balance c/d Rs. 95,000 Rs. 49,000 Rs. 46,000
In the above example of the cash book, a single entry is made for all the
income and expenses of a business for a month. The balances of the
income and expenses are carried forward to the next month, and the next
month starts with the previous months’ total income and expenses
balances.
Advantages of Single Entry System of
Bookkeeping
The single entry system of bookkeeping is a very simple and economical
method of bookkeeping. The advantages of this system are as follows:
Simple and Easy
The single entry system of bookkeeping is easy to maintain and simple to
understand. It does not have a fixed set of principles and rules to follow
while recording financial transactions. Since this system is simple, anyone
can maintain it as it does not require adequate accounting knowledge.
Economical
The single entry system of bookkeeping is an economic system of
recording and maintaining financial transactions. Skilled accounting
personnel or professionals are not required to be hired for recording
financial transactions of the business. It also does not require a large
number of books to record as there are a limited number of financial
transactions.
Easy to Calculate Profit
The amount of profit can be calculated easily under the single entry system
of bookkeeping. As it is based on the income statement, it is easy to find
out the profit and loss of the business at any given time.
Disadvantages of Single Entry System
of Bookkeeping
Although the single entry system is simple and economical, it has several
drawbacks also. The disadvantages of the single entry system are as
follows:
Unscientific and Unsystematic
The single entry system is an unscientific and unsystematic system of
recording and maintaining financial transactions as it does not follow any
fixed principles or rules for recording financial transactions.
Incomplete System
The single entry system is considered an incomplete bookkeeping system
because it does not record two aspects of the financial transactions of a
business. It maintains only a cash account and does not maintain
transactions relating to the real and nominal account. Since it records only
one aspect of all financial transactions, it fails to present the complete
information required by the management of the business.
Lack of Arithmetical Accuracy
Since the single entry system is not based on the principles of credit and
debit, it fails to give arithmetical accuracy of the books of accounts. Under
this system, a trial balance cannot be prepared to check the arithmetical
accuracy of the books of accounts. As there is no arithmetical accuracy, the
possibility of committing manipulation, error or fraud is higher than the
double-entry system of bookkeeping.
Does Not Reflect True Financial Position
The accurate sum of profit or loss cannot be ascertained under the single-
entry bookkeeping system as it does not maintain nominal accounts. This
system also does not maintain and record real accounts except cash
books. Therefore, it cannot reflect the proper financial position of a
business.
The balance sheet cannot be prepared because the real accounts are not
maintained. Thus, the correct financial position of the business cannot be
ascertained at the end of the accounting period.
Unacceptable For Tax Purpose
The single entry system has incomplete and inaccurate records of the
financial transactions of a business. Hence, the tax authorities do not
accept the accounts maintained and recorded under this system for the
purpose of tax assessment.
