A single Entry System is a method of keeping records of financial transactions, which is rarely prevalent these days. In this system, only one side of the transaction is recorded, because of the absence of any prescribed rules and so the records maintained are more or less incomplete. It is easy to maintain as it does not need any professional accountant to keep the records up to date. And so this system is quite helpful for small businesses and trades operated solely by individuals. Further, the system is quite economical.
Characteristics of Single Entry System
- Maintenance of Cash Book: Cash Book is prepared and maintained, in which both business and personal transactions are included.
- Personal Accounts: Only personal accounts are created and maintained, whereas the real and nominal accounts are not given due weight, in this system.
- Original Vouchers: Under this system, original vouchers play an important role, as they help in gathering information about the date of transaction, amount, parties, discount (if any), and so forth.
- Final Accounts: So, to prepare the financial statement, the available information is analyzed and converted into a double-entry system, by determining the missing figures, that the Trading and Profit & Loss Account is prepared. Further, the figures of assets and liabilities are calculated from the information at hand, but they are also estimates. Hence, the Statement of Affairs is prepared in place of the Balance Sheet.
- Profit or Loss: Profit earned or loss sustained is estimated, out of the information available and so exact profits is not ascertained.
- Suitability: The system is appropriate for small businesses, like sole proprietorship businesses and partnership firms, as they maintain records of cash and credit transactions only.
Disadvantages of Single Entry System
- Assets are not tracked, so it is easier for them to be lost or stolen.
- It is impossible to obtain an audit opinion on the financial results of a business using a single entry system; the information must be converted to a double-entry format for an audit to even be a possibility.
- It is much easier to make clerical errors in a single entry system, as opposed to the double-entry system, where the debit and credit totals for separate entries to different accounts must match.
- Liabilities are not tracked, so you need a separate system for determining when they are due for payment, and in what amounts.
- There is much less information available upon which to construct the financial position of a business, so management may not be fully aware of the performance of the firm.
Types of Single Entry System
- Pure Single Entry System: In this method, only the personal accounts are maintained and there is no information present, concerning the sales and purchases, cash in hand, and bank balance.
- Simple Single Entry System: In this, Cashbook is maintained along with the personal accounts, and these are maintained as per the double-entry system of bookkeeping. Cash received or paid, from/to business debtors or creditors are merely written on the bills issued or received.
- Quasi Single Entry System: In this system, subsidiary books such as sales books, purchases books, bills receivable books, and bills payable books are maintained in addition to cash books and personal accounts.