What is a Single Entry System?
Single Entry System in Accounting is an accounting approach under which each and every accounting transaction is recorded with only a single entry in the accounting records which is centered towards results of the business enterprise which are shown in the statement of income of the company.
In simple words, A single entry system records a transaction with a single entry and only maintains one side of every transaction. It is the oldest method of recording financial transactions and is less popular than the double entry systemDouble Entry SystemDouble Entry Accounting System is an accounting approach which states that each & every business transaction is recorded in at least 2 accounts, i.e., a Debit & a Credit. Furthermore, the number of transactions entered as the debits must be equivalent to that of the credits. and is mainly used for entries recorded in the income statement. This term is used to describe the problems associated with the accounts from an incomplete transaction and is popularly called as ‘Preparation of accounts from incomplete records’
The core information involves cash receiptsCash ReceiptsA cash receipt is a small document that works as evidence that the amount of cash received during a transaction involves transferring cash or cash equivalent. The original copy of this receipt is given to the customer, while the seller keeps the other copy for accounting purposes. and cash disbursements rather than asset and liability records. The primary form is the cash book, which is an expanded form of the check register. It mainly has columns that record particular sources and uses of cash, and starts with the opening balance and ends with closing balance. The single entry system is used primarily in the manual process of accounting and by small firms that do not have the financial capability and resources that are necessary for a full-fledged accounting system. Mainly all the computerized accounting systemsAccounting SystemsAccounting systems are used by organizations to record financial information such as income, expenses, and other accounting activities. They serve as a key tool for monitoring and tracking the company's performance and ensuring the smooth operation of the firm. use double-entry accounting.
Example Format of a Single Entry System Accounting Book
Below is the example format –
|1002||Jul – 20||Deposit||$15,000|
|1003||Jul – 21||Goods||$2,000|
It is an inaccurate and unscientific way of recording transactions where there is no linkage among the transactions or the available information. There is no record of real and personal accounts, and the cash book mixes up the business and individual transactions.
Types of Single Entry Accounting System
#1 – Pure Single Entry
In this, no information is available of sales, purchases, and cash and bank balances; only personal accounts are considered. This method cannot be used in the practical world since it does not provide any information regarding cash or the daily transactions
#2 – Simple Single Entry
This account is kept based on a double entry system, but only two accounts are considered, i.e., the personal and the cash account. Entries are made only from these accounts, and no other account is considered.
#3 – Quasi Single Entry
In this type of accountingType Of AccountingThere are different types of the accounting which an organization can follow as per the scope of its work and need of stakeholders. Some of them include financial accounting, forensic accounting, accounting information system, managerial accounting, taxation, auditing, cost accounting, etc., apart from the personal and cash accounts, other subsidiary accounts are also maintained. The main ones being sales, purchases accounts, and bill books. Discounts are also recorded in the personal account. Additional vital information like wages, rent, salaries is also available. This method is adopted as a substitute to double entry accounting system
On the whole, by looking at the types, we can determine that the single entry accounting system can be defined as the system which is a mixture of Single-entry double entry and no entry
- It is comparatively simple and easy to implement
- No professionals are required, resources with a basic understanding of accounting or business can perform single entry system
- This type of accounting suits small firms which are at starting stage and startups
- Income and expense are accounted for daily
- Only limited accounts are opened since all the transactions related to personal account are recorded relating in personal and real accounts
- As mentioned in the previous point, that limited accounts are opened, and the books are scarce, expenses to maintain these accounts are also limited
- This system is purely based on the income statement. Hence, it becomes easier to determine the profit and loss
Please note that Profits under this system can only be an estimate and therefore cannot necessarily be true and correct
#1 – Assets
In terms of keeping recording or tracking, this system does not track assets. Thus, it makes it easier for them to be lost or stolen
#2 – Audited Statements
The double entry system is necessary for auditing financial statements necessary for the checks and balances of each account. It is impossible to audit statements in a single entry system. Even if one wants to do it, they will have to convert the single entry to double entries and balance it for auditing
#3 – Increased Risk of Errors
In this system, there is no check for other accounts and cannot be balanced. This issue makes it more challenging to keep a check or find missing entries and track errors
#4 – Performance Analysis
Financial position cannot be determined since there is no proper balance sheet maintained and also due to the limited information. It makes it difficult for the management to analyze its performance and estimate future metrics
#5 – Incomplete Records
This system only focuses mainly only on those transactions which involve business or transactions with external parties and ignores the other vital transactions that may be necessary to determine the financial position of the company and should have a place in the financial statements
#6 – Accuracy
Arithmetical accuracy cannot be achieved since this system does not prepare a trial balance
Difference Between Single Entry and Double Entry Accounting System
The Major Differences in Single Entry Accounting and Double Entry Accounting System
- It can be defined as a system where only one aspect of each transaction is maintained i.e., either debitDebitDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits. or credit, on the contrary in double method accounting system both these transactions are recorded, and all the aspects of every transaction are
- Single entry transaction is simple and does not require detailed knowledge in accounts whereas double entry transaction requires expertise
- Incomplete records are maintained in a single entry system while double entry captures both the sides and records
- Single entry system maintains cash accounts and personal accounts while double entry system maintains all kind of account, i.e., real, nominal and personal
- Since small firms do not have the financial capabilities and resources single entry accounting is suitable on the contrary for large firms it is necessary to have a double entry accounting system
- Frauds and errors are more accessible to identify in double entry accounting system than in the single entry system
- As compared with the double entry system, a single entry system has no standardization, and there is no uniformity between the different businesses following the same method. Each business maintains accounts as per its convenience and requirements.
This article has been a guide to Single Entry System in Accounting. Here we discuss what single entry system along with examples, types, advantages, problems, and differences with a double-entry accounting system is. You may also take a look at the below useful accounting article –