According to Carter—“Single entry system is a method or a variety of methods, employed for the recording of transactions, which ignore the two-fold aspects and consequently fails to provide the businessman with the information necessary for him to be able to ascertain the position. Kohler defines it as 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.”
Salient features of single entry system
Cash Book is Maintained : Under this system, a Cash book is maintained. It usually, mixes up business as well as private transactions of the proprietor.
Only Personal Accounts are Maintained : Under this method, only personal accounts are maintained. Real and nominal accounts are ignored.
Depends on Original Voucher : Information is, generally, collected from original vouchers, credit purchases and sales are ascertained with the help of invoices and vouchers.
Incomplete and Unscientific Method : This method of keeping accounts is not authentic, incomplete and tax authorities do not recognise it.
No Uniformity : This system differs from firm to firm. It is followed according to the requirements of the business.
Suitability : This system of accounting is suitable to small traders and partnership firms.
Balance Sheet : Balance Sheet cannot be prepared in the absence of ledger accounts. Under the circumstances, statement of affairs is prepared from whatever sources available.
Flexibility : This system is flexible as recording procedure can be adjusted according to the information available and need of the business. No hard and fast rule of accounting is followed.
Advantages
Economical : It is quite economical as it requires a few books of accounts.
Simple : It is a simple and easy method of recording transactions.
Suitable for Small Traders : This system is suitable for small traders because they cannot afford to spend large amount in keeping books of accounts.
Easy to Ascertain Profit : It is easy to calculate profit or loss under this method.
Evasion of Tax : Tax evasion is easy under this method because full details are not available.
Disadvantages
Incomplete and Unscientific : This system is incomplete and unscientific because both the aspects, debit and credit of a transaction, are not recorded. Moreover, there are no set of rules under this method.
Difficulty in Preparing Balance Sheet : Balance sheet cannot be prepared because real accounts are not prepared. Only a statement of affairs is prepared. The value of assets and liabilities is written on the basis of estimates.
Unsuitable for Planning : This system fails to provide reliable figures required for planning and decision making.
Internal Check : Due to the absence of internal check, this system gives room for errors and fraud.
Control over Assets : The value of assets cannot be properly calculated in the absence of assets accounts.
Arithmetic Accuracy : Under this method, trial balance is not prepared. As such, arithmetical accuracy of the books of the accounts cannot be ascertained.
Tax Authorities : Tax authorities do not accept account maintained under this method for the assessment of taxes.
Comparative Study Difficult: The profitability and the financial position of the current year cannot be compared with that of previous year on account of incomplete information.
The difference
(i) In double entry system both the aspects of every transaction are recorded. But under single entry system both the aspects of very few transactions are recorded. For some transactions only one aspect and yet for others no aspect is recorded.
(ii) In double entry system, personal, real and nominal accounts are prepared but in single entry system only personal accounts are prepared.
(iii) Double entry system is suitable for all business enterprises, whereas single entry system is suitable for small traders only.
(iv) Whereas double entry system prevents frauds and misappropriation of funds, single entry system invites these troubles.
(v) Important accounting ratios can be compared in double entry system, but they can not be prepared under single entry system.
(vi) Whereas double entry system is scientific and follows specified rules, single entry system is otherwise i.e. unscientific and does not follow any rules.
(vii) Tax authorities accept accounts prepared with double entry system but do not accept the accounts prepared according to the single entry system.
(viii) Under double entry system, trial balance is prepared to check the arithmetical accuracy of accounts but it is not possible in case of accounts maintained as per single entry system.
(ix) Balance sheet is prepared under double entry system to ascertain financial position of the business but this is not possible by following single entry system.
The difference
(i) Trial balance is prepared before preparing balance sheet but trial balance is not prepared to prepare statement of affairs.
(ii) Total of both sides of balance sheet must tally but it is not in the case of statement of affairs.
(iii) Capital is shown in the balance sheet but in statement of affairs, balance of assets over liabilities become the capital.
(iv) Whereas balance sheet is prepared to ascertain the financial position of the business, statement of affairs is prepared to find capital.
(v) Balance sheet is prepared on the basis of records which are prepared following double entry system. Statement of affairs is prepared on the basis of those records prepared from incomplete records.
(vi) Value of assets and liabilities are actual values shown in balance sheet but value of assets and liabilites is estimated by the owners in statement of affairs.
Limitations of single entry system
Financial Position : Correct evaluation of financial results of the business operation cannot be prepared according to this method.
No Legal Recognition : This system is not recognised by the authorities. Moreover, companies cannot adopt this method of accounting.
No Trial Balance : Trial balance cannot be prepared in this method.
Unscientific : This system is unscientific. There are not set rules for maintaining records.
Comparisons : Comparison of two or more business organisations cannot be made on account of variations of procedures rules followed by different firms.
Chances of Frauds : There are chances of frauds since there is no internal check of accounts.
Accuracy : Arithmetical accuracy of accounts cannot be checked because no ledger accounts are maintained under this system.
Uses of single entry system
(i) Single entry system is simple and inexpensive.
(ii) It is suitable for small business firms.
(iii) It is easy to maintain accounts according to this system.
(iv) In case accounts books are destroyed by fire etc., this system can be applied.
Profit or Loss from incomplete records
This can be done by adopting any one of the following two methods:
(1) Statement of Affairs Method or capital comparison method or net worth method.
(2) Conversion into Double Entry Method.
Statement of affairs method
As per this method, profits are calculated by comparing the capital at the end and capital at the beginning of the accounting period.
Capital at the beginning is ascertained by preparing an Opening Statement of Affairs and capital at the end is calculated by preparing Closing Statement of Affairs.
Statements of Affairs
Liabilities Amount Assets Amount
Rs. Rs.
Bank Overdraft Cash in Hand
Bills Payable Cash at Bank
Sundry Creditors Bill Receivable
Outstanding Expen- Sunday Debtors
ses Stock
Income Received Prepaid Expenses
in Advance Accrued Income
Capital (being Furniture
balancing figure) Plant & Machi-
nery etc.
In case the total of liabilities are deducted from the total of assets side of the statement of affairs, the balance is taken to be capital based on the equation.
Capital = Assets–Liabilities
calculation of profit
The following steps are followed to calculate profit:
(i) Statement of affairs at the beginning is prepared to calculate the capital at the beginning.
(ii) Statement of affairs at the end of the year is prepared to ascertain the capital at the end. It is known as closing capital.
(iii) Closing capital is adjusted by adding drawing and subtracting additional capital introduced during the year.
(iv) Opening capital is deducted from the closing Capital.
Formula
Profit = Closing Capital+Drawings–Additional Capital–Opening Capital.
Adjustments
When some adjustments are given in the question, the opening and closing capital should first be prepared without taking into account these adjustments.
The adjustments which result in increase in income and gains must be added to arrive at the figure of net profits such as prepaid expenses, interest on investments, etc.
The adjustments which results in increase in losses or expenses should be deducted to arrive at the figure of net profit e.g. depreciation, outstanding expenses, interest on capital, interest on loan, provision for doubtful debts etc.
Last of all statements of affairs should be prepared once again after making adjustments. Thus, adjustments are recorded at two places.
To convert single entry account into double entry
The following steps are taken to convert the single entry records into double entry records.
Statement of Affairs : Statement of affairs at the beginning should be prepared first. After that accounts for all the items appearing in the statement of affairs should be opened in the ledger with the help of opening entries in the journal.
Cash book : Cash book should be prepared for all cash and bank transactions. All the entries of the Cash book on the both sides should also be posted to ledger.
Subsidiary Books : These books should be thoroughly checked and posted to their respective accounts. Posting of personal accounts from subsidiary books should also be completed.
Journal : All such transactions which find no place in other books should be recorded in journal and then posted to ledger.
Final Accounts : Last of all, trial balance should be prepared with the help of ledger balances. Trading account, profit and loss account, and balance sheet should be prepared on the basis of it.
It is a lengthy process. In the examination, final accounts are prepared directly with the help of whatever information is available.
Missing figures
In the examination, a student should prepare the following accounts in order to trace the missing figures.
Opening Statement of Affairs : In order to calculate the opening balance of capital, opening statements of affairs is prepared.
Preparing of Cash book : Summary of Cash book should be prepared by recording the receipts on debit side and the payments on the credit side. In this way, missing figures of cash or bank can be revealed. If opening balance book of cash is given, closing balance can be revealed and vice versa with the help of cash book.
Total Debtors : Total debtors account can be opened with the help of the following proforma.
Total Debtors Account
Dr. Cr.
Particulars Amt. Particulars Amt
Rs. Rs.
To Balance b/d By Cash Received
(Opening Balance from Debtors
of Debtors) By Bills
To Bills Receivable Receivable
Dishonoured (Received)
To Cash Refunded By Sales Returns
to Debtors By Discount Allowed
To Credit Sales, if By Bad Debts
given (if not given, By Balance c/d
balancing figure is (closing balance of
credit sales) debtors either given
or balancing figure)
Total Creditors : Total creditors account is prepared as follows.
Total creditors Account
Dr. Cr.
Particulars Amt. Particulars Amt.
Rs. Rs.
To Cash Paid to By Balance b/d
creditors (Opening Balance
To Bills Payable of creditors)
(Accepted) By Bills Payable
To Bills Receivable Dishnoured
(Endorsed) By Bills
To Purchases Receivables
Returns endorsed
To Discount (dishonoured)
Received By Credit Purchases,
To Balance c/d if given (If not
(Closing Balance of given, balancing figure
creditors, either given is credit Purchases)
or balancing figure)
Preparation of Final accounts
Trading Account and Profit and Loss Account and Balance Sheet are prepared in the end with the help of information provided in the sum whereas missing figures are arrived at as already discussed.
1. Opening statement of affairs to findout opening capital.
2. Cash book to ascertain the ‘Opening’ or ‘Closing’ balance of cash or bank.
3. Total Debtors Account is prepared to ascertain credit sales or closing debtors and sometimes to find out opening debtors or cash received from debtors.
4. Total creditors account is prepared to ascertain credit purchases or closing creditors, opening creditors and cash paid to creditors.
After preparing these accounts, Trading and Profit & Loss Account and Closing balance sheet should be prepared.
Opening and closing stock
In some cases, value of opening or closing stock is not given. In such questions, rate of gross profit is mentioned. As such, total gross profit on sales can be calculated Now, the balancing figure of trading account remains to be opening stock or closing stock.
Sales
Total Sales = Credit Sales + Cash Sales
Total Sales = Cost of Goods Sold including direct expenses + Profit on Sales–Loss on Sales
Credit Sales = Total Sales–Cash Sales.
Cost of Sales =
Bills Payable Account and Bills Receivable Account is prepared as follows:
Bills Payable Account
Dr. Cr.
Particulars Amt. Particulars Amt.
Rs. Rs.
To Cash (Bills Pay- By Opening Balance
able Paid) or Bank (B.P. in Beginning)
To Creditors (Bills By Creditors A/c
Payable Dishnoured) (Bills Payable accepted)
To Closing Balance
c/d (B.P at closing)
Bills Receivable Account
Dr. Cr
Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d By Cash/Bank
(Balance in the A/c (Received
beginning) from B.R.)
To Debtors A/c By B. R. Dishon-
(Bills Drawn) oured
By Creditors A/c
(B. R. endorsed to
creditors)
By Balance c/d
(BR at the end)
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