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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.
The following are the features of the single entry system:
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.
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.
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.
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.
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.
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.
The oldest form of single-entry bookkeeping system is through the cash book. An example of the cash book entries are given below:
|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.
The single entry system of bookkeeping is a very simple and economical method of bookkeeping. The advantages of this system are as follows:
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.
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.
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.
Although the single entry system is simple and economical, it has several drawbacks also. The disadvantages of the single entry system are as follows:
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.
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.
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.
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.
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.