SINGLE ENTRY (THEORY)
Q.1. What do you mean by Single Entry System and how does it differ from Double Entry System?
Ans. An accounting system, which is not based on double entry, is known as Incomplete Accounting System or Single Entry System. Single entry does not mean that there is one entry for each transaction i.e., only one account is given — debit or credit for each transaction. But it simply means that principles of the double entry system are not being followed for all transactions. Under this method, usually the personal accounts of the debtors and creditors are kept and impersonal accounts—real and nominal accounts, may not be maintained in the books.
Kohler defines Single Entry System as "A system of book-keeping, in which, as a rule, only records of cash and personal accounts are maintained, it is always double entry, varying with double entry."
In short, single entry system is a method or a variety of methods used for recording of business transactions, which ignore double or two-fold aspect of transactions. As a consequence, the system fails to provide the necessary information to the businessman which may enable him to ascertain the position of the business.
Difference between Single Entry System and Double Entry System
Even under Single Entry method, Trading Accounts, Profit & Loss Accounts and Balance Sheets can be prepared if some expert accountant works on the data or information available and converts the single entry records (or what are also called incomplete or haphazard records) into somewhat complete records as these should have been had the accounts been maintained rightly according to the double entry system of book keeping.
There is only one system of maintaining accounts and that is the double entry system of book keeping. Not maintaining full or systematic accounts according to the double entry system means that accounts are maintained according to the single entry system or method. Actually the single entry system is not a system at all. It is a method that businesses may use.
Profits or losses are ascertained from incomplete or single entry records by two methods:
(i) Increase/Decrease in Net Worth or Statement of Affairs method.
(ii) Conversion method whereby full Final Accounts and Balance Sheet are prepared.
Q.2. What do you mean by 'Single Entry System'? Briefly point out the disadvantages of this system.
Ans. SINGLE ENTRY SYSTEM
Single Entry does not mean that there is one entry for each transaction, i.e., only one account is given —debit or credit for each transaction. But it simply means that the principles of the double entry system are not being followed for all transactions. Under the method, usually the personal accounts of the debtors and creditors are kept and not impersonal accounts—real and nominal accounts may not be maintained in the books. E.L. Kohler in 'Dictionary for Accounting' defines single entry system as "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 system, varying with circumstances."
Actually the use of word 'system' in case of single entry is a misnomer because it describes absence of systematic recording of two aspects of a business transaction. However, in accounting literature, procedure of recording, which falls short of double entry system, is called single entry system.
DISADVANTAGES OF SINGLE ENTRY SYSTEM.
Following are the defects of Single Entry System:
1. Trial Balance cannot be prepared. Only personal accounts are opened in this system. So it is not possible to prepare a Trial Balance and check the accuracy of accounts.
2. Determination of true Profit (or Loss) is not possible. Nominal accounts are not maintained and therefore, it is not possible to prepare Trading A/c and Profit & Loss A/c to obtain gross profit and net profit respectively. Although the amount of net profit is determined but the absence of details of revenue, other incomes, expenses and losses affect sound decision making.
3. True financial position cannot be determined. Absence of real accounts makes the job of preparation of Balance Sheet very difficult. Due to lack of information about the value of assets, an estimate of these is taken. Statement listing assets and liabilities in this case is called Statement of Affairs instead of Balance Sheet. Statement of Affairs fails to reveal the true financial position of the business.
4. Unscientific. There are no set rules for maintaining records under this system. Absence of systematic recording of both aspects of transactions under single entry system makes it unscientific.
5. Inter-firm comparisons are not possible. Because of variations in accounting procedure and rules, comparison of two or more businesses is not possible.
6. Legally not recognised. According to Companies Act, 1956, single entry system cannot be employed by companies. Moreover, accounts maintained on single entry system are not accepted by Sales-tax and Income-tax authorities.
7. Unsuitable for planning and control. In the absence of reliable information about nominal and real accounts, effective planning and control over expenses and assets etc. is not possible.