Single Entry System

 Single Entry System

    The single entry system is a type of bookkeeping system, whereas only one aspect of a transaction is recorded, sometimes both aspects of a transaction are recorded, and sometimes no aspect of a transaction is recorded.

    This system of bookkeeping is generally followed by small business concerns e.g small shops, clinics, etc.

    Typically under this system of bookkeeping, the following records are kept:

1. Day Book or General Journal
2. Cash Book
3. Ledger Accounts for individual customers and creditors

    Due to incomplete records and accounts, it is not possible to prepare a trial balance, and as such financial statements are not easy to prepare.

Profit determination methods under single entry system:

1. Increased net-worth method (Balance Sheet Approach)
2. Conversion method

    

Increased net-worth method (Balance Sheet Approach)

    This method is also known as the " statement of affairs method". Under this method, two balance sheets ( statement of affairs) are prepared. One balance sheet is prepared at the start of the period to find the " opening capital" and the other balance sheet is prepared at the end of the period to find the " closing capital".

    Note 1:                 Capital (Net Worth) = Assets - Liabilities

    Opening capital is compared with closing capital to determine profit or loss during the period.

Note 2:

    if

   Adjusted Closing Capital > Opening Capital    then    "Net Proft"

    

    and if

    Opening Capital> Adjusted Closing Capital then        "Net Loss".

 After preparing an opening and closing statement of affairs, a final statement is prepared that is known as Statement of Profit or Loss to find out the profitability of business operations at during the period.

Some Features and  Limitations of  Single Entry System:

• Only personal accounts are maintained.
• Impersonal accounts are not maintained
• The system is not governed by definite rules.
• Trial balance cannot be prepared under a single entry system, therefore, arithmetic accuracy of the accounting work cannot be determined.
• The balance sheet cannot be prepared under a single entry system.
• this system helps to calculate profit during the period but without showing its composition.
• This system creates chances of fraud and misappropriation.
• Final accounts are impossible to prepare under this system.
• Ratio analysis is not possible under a single entry system.
• Proper appraisal of financial position is not possible under this system.
• Due to legal restrictions, limited companies cannot maintain accounts under this system.

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