Books of accounts are often maintained under a single-entry bookkeeping System also. In this accounting system, the principles of debit and credit aren’t strictly followed. Unlike the Double Entry System, where we used to record the dual aspect of each transaction (for example every transaction affects two accounts simultaneously), here in this system, we record only the single aspect of a transaction. This is the rationale, why a single-entry bookkeeping system is usually termed as Accounts from Incomplete Records or Defective Double Entry System.
Under a single-entry bookkeeping System, we maintain only cash and private accounts. On the other hand, real and nominal accounts are completely ignored. In other words, we can say that following the only Entry System, we don’t prepare subsidiary books (such as Purchase Day Book, Sales Day Book, Purchase Returns, and Sales Returns Book) and ledgers accounts. Often accountants regard a single-entry bookkeeping System as an unscientific method of maintaining records because the practice that’s followed during this system is unsystematic and unorganized.
Advantages of Single Entry System
Easy to Maintain: This method of recording transactions is very simple. This is because no expert knowledge of accounting is required to maintain books.
Economical: This system is less expensive in comparison to the double-entry system of accounting as there is no need to hire a specialized accountant for maintaining accounting records.
Suitable for Small Businesses: This system is particularly suitable for small business organizations that do not account for a large number of transactions.
Less Time-Consuming: It is less time-consuming as only a few books are to be maintained.
Flexible: As the rules of the Double Entry System are not strictly followed, so, it can be easily adjusted or changed as per the requirement of the proprietor.
Simple to Compute Profits or Losses: The computation of profits or losses under this system is very simple. This is done merely by comparing the capital at the end with that of capital in the beginning.
Disadvantages of Single Entry System
Does not ensure Arithmetical Accuracy: Under this system, Trial Balance is not prepared; therefore, it becomes extremely difficult in verifying and checking the arithmetical accuracy of the books of accounts so prepared. This successively encourages frauds and manipulations.
Unsystematic or Unscientific System: As the dual aspects of the transactions are not recorded, so this system is considered to be incomplete or unscientific.
Lack of Control over the Assets: As real and nominal accounts are not prepared, so it is difficult to keep a proper account of the assets. This may lead to misappropriation, fraud, and embezzlement of assets.
Difficulty in Detection of Errors and Frauds: Since a proper accounting system is not followed, the books of accounts fail to reveal the clear financial picture of the business. This may further encourage the probability of undetectable errors and frauds.
Accurate Profits or Losses cannot be determined: Under this system, the profits or losses so determined are merely an approximation and not the actual figures. Thus, the Single Entry System is not capable of depicting the true financial position of a business.
Comparative Study not Possible: One of the major drawbacks of this system is that it fails to compare the current year’s performance with that of the previous year. Thus, meaningful comparative studies and analysis cannot be laid.
Fails to work out Growth of Business: the particular performance of a business is expressed and measured in terms of profits and losses. Since the Single Entry System is incapable of revealing the actual profit or loss figures; therefore, this system fails to enable the users to assess the actual performance of the business.
Unacceptable to Tax Authorities: The books of accounts maintained by following the Single Entry System are not accepted by the tax authorities on any grounds. This is because these books are not maintained by following universally and lawfully accepted accounting principles.
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Double Entry System
Under the double-entry system, there are two aspects of every transaction i.e. debit and credit. So, both aspects of each transaction are recorded.
Meaning of BookKeeping
The meaning of bookkeeping is often found within the term itself. This implies keeping the records of business transactions within the original books of accounts of the business.