Single entry book keeping system is that system of book-keeping under which financial transactions are recorded without considering dual aspect. This means only one aspect is affected while keeping the record of financial transactions. It is not possible for the small organization to keep a record of a transaction using double entry system. So, it is better for them to use single entry system because double entry system is expensive for small organization. This system helps to maintain only cash and personal account of debtors and creditors. The impersonal account like purchase accounts, sales accounts, wages account, rent account, etc. are ignored.
“The term single entry is applied to a style of book-keeping under which only the personal accounts of the debtors and creditors of the businessman are kept.” –J.R. Batliboi
Therefore, under single entry system every organization records receipts and payment as well as receivable and payable.
Features of single entry system
Single entry system can be used only by a sole trader or partnership firm organization. It can’t be used by a limited company because of a legal provision.
This system avoids impersonal accounts. Thus, this system is defined as a system where only personal accounts are kept.
It is very common to keep cash book which mixes up business as well as private transactions.
It is quite often seen that, for information, one has to depend on original vouchers.
This system looks uniformity as it is a mere adjustment of double entry system according to convenience of the person.
Advantage of single entry system
It is a simple and easy method of recording transactions.
It is suitable for a small business firm as it is simple and economical.
It is more economical then double entry system because it maintains only personal accounts and cash book.
It does not take more time for recording and reporting the financial statements.
The profit can be determined easily in this system by comparing closing capital and opening capital.
Disadvantage of single entry system
This system is incomplete and unsystematic as it doesn’t record both the aspect of transactions.
It doesn’t prepare trading accountbecausegross profit on sale can’t be known.
It can’t present net profit and net loss because it doesn’t prepare profit and loss account.
This system can’t disclose the financial position of the concern as it doesn’t prepare a balance sheet.
In this system, it is difficult to estimate the value of business for the purpose of sale due to an absence of balance sheet.
Difference between single entry system & double entry system
Single entry system
Double entry system
Dual effect of each transaction is not considered in this system.
This system maintains the records by following the principles of the dual effect of each transaction.
Types of account
In this system, only personal accounts are kept & impersonal accounts are avoided.
In this system, both personal and impersonal accounts are maintained.
It can’t show the true financial position.
It can show the true financial position.
It is suitable for a small organization.
It is suitable for a large organization.
It is unsystematic, incomplete & lacks uniformity.
It is scientific, complete & systematic.
Determination of profit under single entry system
When accounts are kept under single entry system, profit made during the year is calculated by two methods. The methods are:
Conversion method: Under conversion method, the single entry system is converted to a double entry system. This method prepares profit and loss account to ascertain profit or loss and balance sheet to know the financial position of the concern. In this method, creditor, debtors, cash, bills receivable, bills payable, etc. are found so that trading account, profit and loss account and balance sheet can be prepared.
Increase in net worth method or statement of affairs: Under single entry system, the profit and loss can be ascertained by comparing the net worth at the beginning of the period and at the end of the period. The essential requirement for calculation of profit is calculation of capital at the beginning and at the end through the preparation of statement of affairs in the beginning as well as at the end. A statement of affairs, like balance sheet is a statement of assets and liabilities.
Drawing: The drawing is added to the capital at the end because the drawing made during the year will reduce the capital at the end but not the profit.
Additional Capital: The additional capital is deducted from the capital of the end because any increase in the capital at the end due to additional capital during the year is not to be mistaken for an increase in capital due to the profit made during the year.
Thus, the procedure can be summarized as follows:
Step 1: Calculate the amount of opening and closing capital (net worth) by preparing statement of affairs.
Step 2: Adjust the capital at the end by adding a drawing and deducting additional capital during the year.
Step 3: From the adjusted capital at the end, deduct capital in the beginning. The difference is either a profit or loss.
The formula for determining net income (profit or loss of the year)
Profit or loss of the year = Capital at end + Drawing during the year – Additional capital – Opening capital
Specimen for statement of profit and loss
Statement of profit or loss As on year ended…………….
Capital at the end (closing capital) Add: drawing during the year
Total Less: New Additional Capital
Adjusted capital Less: Capital in beginning (opening capital)
Profit/Loss for the year
Sharma, Narendra et.al., Principles of Accounting-XI, Bundipuran Prakashan, Kathmandu