SINGLE ENTRY SYSTEM IN ACCOUNTING
Single Entry System in accounting is a system in which the proprietors or the firms do not follow specific rules of double entry system to maintain accounts. It is an Incomplete Record of Accounts. The accounts are maintain as per the convenience of the users.
ACCORDING TO KOHLER
“A system of book-keeping in which as a rule only records of cash and personal accounts are maintained, it is always incomplete double entry varying with circumstances.”
ACCORDING TO RN CARTER
“A method of book-keeping under which only personal accounts are kept i.e. concerning only Debtors and Creditors.
Single Entry System in Accounting is a defective system of book-keeping where proprietors do no maintain impersonal accounts relating to assets, expenses or losses and gains. The personal accounts of debtors and creditors are usually maintained.
FEATURES OF SINGLE ENTRY SYSTEM IN ACCOUNTING
1. INCOMPLETE DOUBLE ENTRY SYSTEM
Dual aspect of transaction is not recorded under this system. Recording is done according to the convenience and information needs of the business. Some transactions are recorded on double entry system and some transactions are not recorded at all or only one aspect of them is recorded.
2. MAINTENANCE OF PERSONAL ACCOUNTS
Usually under this system personal accounts maintained and Real and Nominal Accounts are avoided. This is why some accountants define it as a system where only personal accounts are maintained.
3. MAINTENANCE OF CASH BOOK
A cash book is a summary of all the cash receipts and cash payments. Cash receipts are recorded at the Debit side of the cash books and Cash payments are recorded at the Credit side of the cash book.
Under this system, a cash book is maintained, which usually mixes up both the personal transactions and business transactions.
4. DEPENDENCE ON ORIGINAL VOUCHERS
Under this system, original vouchers play an important role as they provide the necessary information.
Example: If the credit purchases are made, the proprietor may keep the invoice without recording it anywhere. At the end of the year, the total of the invoices give an idea of the total credit purchases of the business.
5. NO UNIFORMITY
The account from incomplete records is a mixture of single entry system, double entry and no entry. Recording is done according to the convenience and the information needs of the business. As information needs of the business are influenced by the nature of the business, size of the business and prevailing circumstances, the procedure of recording may vary from business to business. It becomes difficult to maintain uniformity in these accounts.
Single Entry System is flexible as recording procedure can be adjusted according to the information needs of the particular business enterprise. As rule of the double entry system are not followed, the knowledge of principles of double entry system of book-keeping is not necessary.
7. DIFFICULTY IN ANALYSIS AND COMPARISON OF FINANCIAL ACCOUNTS
In single entry system, nominal accounts are not maintained. The Trading Account and Profit and Loss Account cannot be maintained which makes the analysis and comparison of financial accounts impossible.
8. LESS EXPENSIVE
Under Single Entry System complete business records are not kept. The time and labour involved in maintaining accounting records is less. This makes this system inexpensive.
This system is followed by sole trading concerns or partnership firms to some extent. The joint stock companies do not follow this system of accounting due to the involvement of legal constraints.
TYPES OF SINGLE ENTRY SYSTEM IN ACCOUNTING
The accounts from incomplete records may be classified into the following three categories:
1. PURE SINGLE ENTRY SYSTEM
This system maintains only personal accounts of debtors and creditors and does not maintain nominal accounts.
2. SIMPLE SINGLE ENTRY SYSTEM
Under this system, personal accounts or cash account or cash book is prepared. The postage from the cash book is made only to the personal accounts and not to the real or nominal accounts.
3. QUASI SINGLE ENTRY SYSTEM
Under this system, Personal accounts, Cash Book and Some other Subsidiary books are maintained. The main subsidiary books are:
- Purchase Book
- Sales Book
- Purchase Return Book
- Sales Return Book
- Bills Receivable Book
- Bills Payable Book
Posting to the personal accounts is only made from the Cash Book and other subsidiary books but not from the real or nominal accounts.
ADVANTAGES OF SINGLE ENTRY SYSTEM IN ACCOUNTING
Since single entry system does not follow complicated rules of double entry system which makes the system quite simple. It can be maintained by anyone without adequate or special knowledge of double entry system of book- keeping.
2. LESS TIME CONSUMING
Single Entry System of maintaining accounts is less time consuming. As in this system, only few accounts are to be maintained just as Cash or Accounts of Debtors and Creditors. So it consumes less time to prepare the accounts.
3. EASY TO COMPUTE PROFIT OR LOSS
It is easier to calculate profit or loss under this method. The comparison of closing capital with opening capital along with some adjustments reveals the profit or loss of the accounting period.
4. UTILITY OF CERTAIN ACCOUNTS
Accounts from Incomplete Records is preferred to double entry system by some businessmen because they consider Cash Book, Debtors Accounts and Creditors Accounts as most important. They feel double entry system as luxury.
This system is more flexible as it can be easily changed and adjusted according to the needs of a particular business.
6. SUITABLE FOR SMALL BUSINESS CONCERNS
This method is suitable for small businesses like sole proprietorship firm, which have limited transactions and few assets and liabilities.
Single Entry System is less expensive. As the accounts maintained under this system are few such as personal accounts, cash book etc. Also there is no need to hire professionals. So the fee charged by the accountants also get saved.
DISADVANTAGES OF SINGLE ENTRY SYSTEM IN ACCOUNTING
There are no set of rules for maintaining records under single entry system. Absence of systematic recording of both aspects of a transaction under single entry system makes it unscientific.
2. ARITHMETICAL ACCURACY OF ACCOUNTS CANNOT BE CHECKED
Double entry system records both aspects of all the transactions. Firms prepare Trial Balance to check the arithmetical accuracy of the accounts. But under single entry system, firms cannot check the arithmetical accuracy of books because under this system firms are unable to prepare the trial balance..
3. GREATER CHANCES OF FRAUD AND MISAPPROPRIATION
As the arithmetical accuracy of books of accounts cannot be checked. It is difficult to detect fraud. Thus single entry system encourages frauds, misappropriations and carelessness.
4. DIFFICULT TO ASCERTAIN TRUE PROFITS
All the expenses and income are not known properly as the nominal accounts are not maintained. As a result, it is difficult to ascertain true profit or loss because Trading and Profit and Loss Account cannot be prepared.
5. DIFFICULT TO JUDGE FINANCIAL POSITION
In the absence of true figure of profits and correct information about the assets and liabilities of the business, the Balance Sheet cannot be drawn up. Therefore, the real financial position cannot be known at the end of accounting period.
6. UNSUITABLE FOR PLANNING, CONTROL AND DECISION MAKING
Under single entry system, adequate information is not available for planning, control and decision making. Thus, in the absence of reliable information about nominal and real accounts, effective planning and control over expenses, assets etc is not possible.
7. LEGALLY NOT RECOGNIZED
As per Indian Companies Act 2013, Single Entry System cannot be employed by the companies. Further, since the accounts under this system are not reliable, hence Income Tax and Sales Tax Authorities do not recognize this.
8. INTER FIRMS COMPARISON NOT POSSIBLE
There is no uniformity in maintaining the business records and the system differ from one concern to another concern depending upon the requirements and nature of each concern, thus making it impossible to compare the financial results of two or more business houses.
9. DIFFICULT TO VALUE GOODWILL OF CONCERN
Because of the lack of adequate and reliable information, proper valuation of goodwill is difficult at the time of disposal of the business.
10. DIFFICULTY IN TAKING THE LOANS FROM OUTSIDE SOURCES
The proprietors employing the Single Entry System will find difficulty in arranging the loans from financial institutions as no satisfactory and reliable data are available regarding the liquidity and profitability of the enterprise.
11. NO CONTROL ON ASSETS
As real accounts are not prepared under this system, so it is difficult to control the assets. The misappropriations of assets are more under this system.
12. DIFFICULTY IN INTRA-FIRM COMPARISON
Due to incomplete records of transactions, it becomes difficult to compare the profitability and the financial position of the business of the current year with that of the previous year.
13. MISCELLANEOUS DIFFICULTIES
In the absence of complete and reliable information the proprietor of a business will find difficulties in the following situations:
- In settling financial disputes in the court of law.
- While assessing the income tax and other tax liabilities
- While determining the purchase consideration at the time of selling the business.