Concept Of Single Entry System And Incomplete Records

SINGLE ENTRY AND INCOMPLETE RECORDS 

Introduction

Single entry system is an incomplete way of recording financial transactions. This system does not record two aspects (debit and credit) or accounts of all the financial transactions. Also, this system has no established or fixed set of rules in recording the financial transactions of the business.
 

It records only one aspect of transaction. As a result, single entry system is not a good system of recording financial transactions because it fails to present or show complete information required by the management.

The system mainly maintains or keeps cash book and personal accounts of debtors and creditors. It ignores nominal accounts and real accounts except cash accounts. Therefore, it is an incomplete form of double entry system, which does not disclose the true profit or loss as well as the financial position of an organization.

Features Of Single Entry System

1. No Fixed Set Of Rules
Single entry system does not have an estblasihed or a fixed set of rules. Therefore, it is not guided by any set of accounting rules in the determination of the amount of profit as well as the preparation of the financial statements.

The System Is Incomplete
Single entry system is a very incomplete system of accounting because not all the aspects of transactions of financial transactions of the business are recorded.

3. Cash Book Is Maintained
Single entry system maintains the cash book for recording cash receipts and payments of the organization during an accounting period.

4. Personal Accounts Are Also Maintained
Single entry system maintains personal accounts of all debtors and creditors in the determination of the amount of credit sales and purchases during an accounting period.



Advantages Of Single Entry System

These are some advantages of the single entry system:

1. Simple And Easy To Understand
Single entry system is simple to understand and easy to maintain because it has no fixed or established set of principles or rules to follow while the financial transactions are being recorded.

2. It Is An Economical System
Single entry system is an economical system of recording financial transactions of a business because it does not require the employment of skilled accounting personnel to record financial transactions of the business. In addition, it does not require a large number of books to record the financial transactions.

3. Profit Is Calculated Easily
Under this system, the total amount of profit can be determined easily. The amount of profit or loss of the period are determined by comparing the amount of closing capital with the amount of opening capital.

4. Suitable For Small Business
The single entry system is simple, easy, and economical system. Hence, it is suitable for small businesses because they cannot afford the cost of the system of double entry. Apart from that, small business are not required to maintain and keep their books of accounts under the double entry system.

Disadvantages Of Single Entry System

These are some disadvantages of single entry system:

1. Incomplete System
Single entry system is incomplete because not all the aspects of financial transactions of the business are recorded. It does not maintain the real and nominal accounts except cash account.

2. Unscientific And Unsystematic
The single entry system is an unsystematic and unscientific system because it does not have any set of established or fixed principles for recording the financial transactions.

3. Lack Of Arithmetical Accuracy
Since single entry system is not based on the principles of debit and credit and it does not provide the arithmetical accuracy of the books of accounts, trial balance can not be prepared under this system to check or confirm the arithmetical accuracy of books of accounts.

4. Does Not Reflect True Profit Or Loss
Under single entry system, we cannot determine the true amount of profit or loss as it does not maintain the nominal accounts.

5. Does Not Reveal True Financial Position
The single entry system does not keep real accounts apart from cash book. As a result, it cannot reveal the true financial position of the business.

6. Unacceptable For Tax Purpose
The single entry system has incomplete records of financial transactions of the business. Therefore, the government cannot accept any account maintained or kept under this system for tax assessment purpose.

7. Frauds And Errors
The single entry system of book-keeping is incomplete, inaccurate and unscientific. The arithmetical accuracy of the books of accounts cannot be checked. Therefore, there is always a possibility or chance of committing frauds and errors in the books of accounts.






Differences Between Single Entry And Double Entry

These are some differences between single entry and double entry system:

1. Meaning
The Single entry system is not a complete system of recording financial transactions. But, the double entry system is a very complete system of recording and reporting financial transactions.

2. Duality
The single entry system is not based on the duality concept. But the double entry system is based on the duality concept.

3. Accounts Maintained
Single entry system maintains or keeps only the personal accounts of debtors and creditors and cash book. Double entry system keeps and maintains all personal, real and nominal accounts.

4. Preparation Of Trial Balance
Single entry system cannot be used to prepare a trial balance and hence, arithmetical accuracy of the books of accounts cannot be checked. Double entry system can be used to prepare trial balance and hence, arithmetical accuracy of the the books of accounts can be checked.

5. Ascertainment Of Profit Or Loss
Single entry system cannot ascertain the true amount of profit or loss of the business because it does not maintain nominal accounts. But double entry system ascertains the true profit or loss of the business because it maintains all nominal accounts.

6. Ascertainment Of Financial Position
Single entry system cannot ascertain the true financial position of the due to the absence of real accounts except cash book. Double entry system ascertains the true financial position of the business because it maintains all personal and real accounts.

7. Tax Assessment
Single entry system cannot be accepted for the purpose of assessment of tax. Double entry system can be accepted for the purpose of assessment of tax.

8. Suitability To Small Business
Single entry system is suitable to a small business where only limited number of transactions are performed. Double entry system is suitable for a large business.

Method Used for Calculating Profit Or Loss

The following method can be used to calculate the profit or loss under the single entry system:

Net Worth Method
Net worth method is also known as statement of affairs method or capital comparison method. Under this method, profit or loss of the business is calculated by making comparison between the capital of two dates of a period.

For example,
Capital as on 1st January 2005 = $50000
Capital as on 31st December 2005 = $80000
Profit for the year 2005 = Closing capital -Opening capital

                                       = $80000-$50000

                                       = $30000.

There are some other capital related items that are to be adjusted to ascertain the amount of profit or loss such as additional capital, drawing, interest on capital etc.
These are:

1. Additional capital: If there is additional capital during the year, it should be deducted from the amount of closing capital.

2. Drawing: If there is drawing during the year, it should be added to the amount of closing capital.

3. Interest on capital: If there is interest on capital, it should be deducted from the amount of closing capital.