Single Entry System It is also called as incomplete double entry system. It is a system of book keeping which maintain only records of cash and personal accounts. In other words it is a method or a variety of methods, employed for the recording of transactions which ignore the two-fold aspect and consequently fails to provide the businessman with the information necessary necessary for him to be able to ascertain the position.
Diference between Double Entry System and Single Entry System Basis o Diference Record ecordin ing g of both both aspec aspects ts
ypes ypes of accounts accounts
rial rial $alance
%et pro&t or loss
Double Entry System It reco record rds s the the both both asp aspect ects s of every transactions
!ll accounts "personal, real and nominal are maintained under it. !rithmetical accuracy of the books of account can be checked in it by preparing a trial balance rue pr pro&t or or lo loss ca can b be e ascertained in it by prep prepar arin ing g radi rading ng and and 'ro&t ( )oss account.
Financial 'osition
rue &nancial position is ascertai ascertained ned by prepari preparing ng $alance *heet
!dustments
Under this system, adu dustme tments are are mad made while preparing &nal accounts
'roof
$ooks maintained under this system are accepted
Single Entry System Unde Underr this this syst system em both both the aspects of very transactions are recorded. For some other tran transa sact ctio ions ns one one aspe aspect ct and yet for others no aspect at all is recorded #nly #nly pers person onal al acco accoun unts ts and a cash book are maintained under it. !rith rithme mettica ical acc accuracy racy cann cannot ot be chec check ked in it beca becaus use e a tria triall bala balanc nce e cannot be prepared. rue rue 'ro&t or loss cannot be ascertained in it beca becaus use e a radi rading ng and and 'ro&t ( )oss account cannot be prepared. rue rue &nancial position canno annott be ascer scerta tain ined ed because the $alance sheet cannot be prepared. #nly a statement of a+airs is prepared based on incomple incomplete te accounts accounts and estimates %o adustments are made under this system because of incompleteness of accounts $ooks $ooks mainta maintaine ined d under under this system are not
*uitability
as evidence in the court of law his method is suitable for all types of business, whether small or large
accepted as evidence in the court of law his method is suitable only for small sie business where the number of transactions is less and that too mostly of cash nature.
Advantages . *imple /ethod0 it is an easy and simple method of recording business transactions because it does not require any special knowledge of the principles of double entry system. 1. )ess e2pensive0 only the cash book and some of the ledger accounts are maintained under this system. !s such, the sta+ required for maintaining the accounts is also less in comparison to double entry system. 3. *uitable for small concerns0 this method is suitable to small business concerns such as sole trader or partnership &rm which have mostly cash transactions and very few assets and liabilities. )imited companies cannot keep their books on this system because of legal provision. 4. 5asy to calculate pro&t or loss0 it is easier to calculate pro&t or loss under this method. For this purpose, only the closing capital has to be compared with the opening capital along with some adustments. 6. Fle2ible /ethod0 the system is more practical and reects the strict rules of double entry system. It can be easily changed and adusted according to the needs of a particular business.
Disadvantages . 'reparation of rial balance not possible0 this method does not record both the aspects of a transaction. !s such trial balance cannot be prepared to check the arithmetical accuracy of the books of account. his increases the possibility of frauds and misappropriations. 1. Incomplete and unscienti&c system0 this system is incomplete and unscienti&c due to the fact that both the aspects, debit and credit of a transaction are not recorded, no set of rules are followed under this method. 3. rue pro&t or loss cannot be ascertained0 because nominal accounts are not maintained, a rading and 'ro&t ( )oss account cannot be prepared and hence the pro&t earned or loss su+ered during a particular period cannot be determined with accuracy. 4. 7i8culty in preparing balance sheet0 since real accounts are not maintained so $alance sheet cannot be prepared to depict the true &nancial position of the business. #nly a statement of a+airs is prepared wherein the value of assets and liabilities is written on estimated basis.
6. %o control on assets0 since real accounts are not maintained, it is not possible to keep full control on the assets and as such the chances of misappropriation of assets cannot be avoided. 9. %o recognition in the assessment of Income a2 and *ales a20 the system fails to reveal the true pro&t and sales of a business. !s such the accounts maintained under this system are not accepted by ta2 authorities. :. 'roper valuation of assets not possible at the time of sale of business0 it becomes very di8cult to &2 the correct price of assets, specially goodwill, at the time of sale of the business.
Ascertainment o Prot or Loss rom Incomplete ecords 7espite the records being incomplete, the businessman would like to know the trading results as also the &nancial position of the business at the end of a particular period. his is done by adopting one of the two methods mentioned below0 . *tatement of !+airs /ethod or ;apital ;omparison /ethod or %et , the di+erence is treated as pro&t. If, on the other hand, the capital at the end is less than that of beginning, the di+erence is treated as loss. !s such, in order to ascertain pro&t according to this method, it is necessary to calculate the capital at the beginning of the year and also at the end of the year. ;apital at the beginning is calculated by preparing an ?#pening *tatement of !+airs@ and similarly capital at the end is calculated by preparing a ?;losing *tatement of !+airs@. ! statement of a+airs is similar to, though not the same, as $alance *heet and prepared as follows0
)iabilities $ank #verdraft $ills payable *undry ;reditors #utstanding e2penses Incomes Received in advance ;apital =being, balancing &gure>
*tatement of !+airs as onAAA.. !mount !ssets Rs ;ash in hand ;ash at bank $ills Receivable *undry debtors *tock 'repaid 52penses !ccrued Income Furniture
!mount
'lant ( /achinery etc AAAAAA.. AAAAAA A If total of liabilities is deducted from the total of assets side of the statement of a+airs, the balance will be taken as capital. It is based on the accounting equation0 ;apital B !ssets-)iabilities !lthough the assets and liabilities are recorded in a statement of a+airs ust like a balance sheet, it should not be described as a balance sheet because of the following di+erences0 $asis of 7i+erence 7ouble entry
$alance *heet It is prepared with list of ledger balances drawn for the books of account kept on the basis of double entry. !rithmetical he tallying of balance !ccuracy sheet proves arithmetical accuracy of accounting books because it is prepared on the basis of trial balance Calue of !ssets and he value of assets and )iabilities liabilities shown in the balance sheet are the actual values based on ledger accounts #bective It is prepared for ascertaining the &nancial position of business #mission of an If an asset or liability is !sset or a )iability omitted while preparing a $alance *heet, it will be easily detected because the balance sheet will not tally.
*tatement of !+airs It is not prepared with the list of ledger balances but with such information as is available from the accounting records kept on the basis of single entry ! *tatement of !+airs does not prove the arithmetical accuracy of accounting books because it is not prepared on the basis of trial balance. he value of assets and liabilities shown in the *tatement of !+airs are merely the estimates based on physical inspection. It is prepared for ascertaining the capital of a business. If an asset or liability is omitted while preparing the statement of a+airs, it cannot be easily detected
$alculation o Prot# t"e steps or calculating t"e prot made during t"e year can be stated as under# . 'repare the statement of a+airs at the beginning for calculating the capital at the start of the year =Dnown as opening capital>
1. 'repare the statement of a+airs at the end for calculating the capital at the end of the year =Dnown as closing capital> 3. !dust the closing capital by adding into it the drawings made by the proprietor during the year and deductions there from the additional capital introduced during the year. 7rawings are also added to the closing capital on the logic that if the drawings had not been made, closing capital would have been higher by this amount. *imilarly additional capital is deducted from the closing capital on the logic that if the additional capital had not been introduced, closing capital would have been lower by this amount. 4. %ow the opening capital is deducted from the adusted closing capital to ascertain the pro&t or loss. . If the capital at the end of an accounting period is more than that at the beginning =with necessary adustments>, the di+erence is treated as pro&t. If, on the other hand, the capital at the end is less than that of beginning, the di+erence is treated as loss. he entire process discussed as above may be put in the form of a Formula a follows0 'ro&tB ;losing capital E 7rawings- !dditional ;apital-#pening ;apital
!dustments0 'ro&t or loss arrived at by comparing the opening and closing capitals is not actually the net pro&t. In order to calculate the amount of net pro&t or loss certain adustments are required to be made.
In case o Loss# when the amount of closing capital =after adusting drawings and additional capital>is less than that of opening capital, the di+erence is treated as loss of the business.
In case of loss the adustments which result in increase in e2penses must be added to the amount of loss and on the other hand the adustments which result in increase in incomes must be deducted.
