Bookkeeping is among the most essential parts of operating a business. Additionally, it can be a tedious task associated with your business transactions, too. Small company owners must comprehend the topic to make sure their business’s security and financial status get maximum protection for the long term.
When discussing bookkeeping, you must learn about its two varieties: single-entry bookkeeping and double-entry bookkeeping. In this post, we will discuss a single-entry system’s meaning, function, types, and examples to determine how it can benefit you.
What Do You Mean by a Single-Entry Bookkeeping System?
Many of you might wonder, What is single-entry in bookkeeping system? The single-entry system of bookkeeping refers to those transactions of a business that affect only one account only. This is to clarify that only a single business account will decrease or increase depending on the transaction amounts. Through this system, one can view the receipts or payments of their cash transactions on their cash book.
A single-entry system of bookkeeping method solely maintains the personal accounts and cash books of the debtors and creditors. It does not maintain any other ledger. The cash book enables businesses to record each business transaction that takes place. It does not apply the principles of the double-entry system of bookkeeping. This system also does not recognize real accounts and nominal accounts.
This system helps to maintain records associated with accounts payable, tax paid, receivable, cash, and other such accounts. Generally, small companies find the single-entry bookkeeping system preferable because its maintenance is easy and has fewer requirements.
How does the Single-Entry System Work?
Under this system, businesses maintain a cash book. Here, they can keep a record of their expenses and income. The process involves an existing cash balance for a specific period. Then, you must subtract the expenses and add the income. After putting in all the transactions, you can calculate your cash balance at the end of a specific period.
Usually, a cash book will contain these data:
- Date: The date when the transaction takes place
- Description: A short note on your transactions
- Transaction value: Put the debit or credit value.
- Balance: Totalling the cash that’s left behind after calculating your income and expenses.
What is the Process of Single-Entry Bookkeeping?
The process of single-entry system bookkeeping stores financial records in a cash journal or cash book within a table. The cash book will contain details like date, description, amount of transaction, and total balance. As per single-entry system meaning, it is simple to record transactions utilizing single-entry system bookkeeping that includes these steps:
1. Begin with The Previous Balance
In the first line of the beginning balance row, note the prior balance that was present. In the account balance column’s first row, enter the sum. It helps to maintain an organized system by writing the previous balance in the first row, which makes it simple to follow the transaction records from the moment you start recording.
2. Document Revenue and Expenses
Use one row for each transaction to fill up the table with income and costs. One by one, enter the income and spending totals in the table. Add the sum to the account balance and record the new account total if the first item in the table is revenue. Subtract the amount from the account balance on the preceding line if the second item in the table represents an expense. Include a table entry for the updated account balance.
3. Calculate the Ending Balance
You may determine the closing balance for the accounting period, which might be weekly or yearly, by adding and subtracting all revenue and costs. Put the amount you calculated in the final balance row. To guarantee a correct recording, remember to double-check the data you’ve recorded.
Example of Single-Entry System Bookkeeping
Cash book is the oldest method of a single-entry bookkeeping system. Given below is a single-entry system example of the cash book entries:
| Date | Description | Income | Expense | Balance |
| 01/06/2021 | Balance b/d | Rs. 50,000 | Rs. 30,000 | Rs.20,000 |
| 05/06/2021 | Wages paid | Rs. 5,000 | Rs. 15,000 | |
| 10/06/2021 | Electricity bill paid | Rs. 5,000 | Rs. 10,000 | |
| 11/06/2021 | Stock Purchase | Rs. 9,000 | Rs. 1,000 | |
| 25/06/2021 | Sales | Rs. 30,000 | Rs. 31,000 | |
| 28/06/2021 | Bank Deposit | Rs. 15,000 | Rs. 46,000 | |
| 30/06/2021 | Balance c/d | Rs. 95,000 | Rs. 49,000 | Rs. 46,000 |
The above single entry system example shows that a cash book enables you to make a single entry for your expenses and income for a month. It will carry forward the expenses and income to the next month. Then, the next month will start with the total expense and income balances of the previous month.
Features of Single-Entry Bookkeeping
The following are some features of the single-entry system in accounting:
- It is relatively straightforward to understand and put into practice.
- A Single-entry system may be completed by individuals with only a rudimentary grasp of accounting or business.
- Startups and small businesses in their early stages benefit from this style of accounting.
- Daily accounting for income and spending is done.
- Since all transactions connected to personal accounts are documented for both real and personal accounts, only limited accounts are established.
Advantages of Single-Entry Bookkeeping
A single-entry accounting system has the following benefits:
1. Offers a Simple Layout
Since just one entry is made at a time, single-entry accounting is an easy accounting process. As a result, those with little to no accounting knowledge can usually handle it. Small firms that might not have the resources to hire a full-time staff accountant are frequently drawn to the ease of single-entry accounting. In this situation, the single-entry system of accounting can be used by the business owner or a current employee to maintain their records for the company.
2. Provides a Cheaper Accounting Method
A pencil and paper are all that is necessary to enter data into a single-entry system of accounting. As there is no need for pricey accounting software, single-entry accounting monitors income and costs. It also features a straightforward and uncomplicated style, which removes the need for specialist people and can help a firm save money. Because of the minimal number of transactions, a single-entry system of accounting is appropriate for organizations with modest data quantities.
3. Helps Maintain Finances
Companies may visualize all their funds entering and leaving out of a firm by employing single-entry accounting. This allows a firm to spot any issues in its financial records and make improvements as needed. Companies can use a single-entry system to identify areas of the business where they are overspending. It can assist them in identifying areas where they can reduce business expenditures and enhance their financial health.
Limitations of the Single-Entry System
- The mathematical correctness of the job accomplished cannot be tested since the trial balance cannot be created.
- The system may open the door to fraud and misappropriation.
- Nominal accounts are not kept in this system. As a result, the final accounting cannot be prepared. As a result, crucial ratios like the operational cost ratio and gross profit ratio cannot be calculated.
- A proper analysis of a company’s financial status is impossible due to insufficient records.
- Due to legal constraints, no limited corporations are permitted to preserve records under this system.
Types of of Single-Entry Bookkeeping
The three main types of this single-entry system include:
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Pure Single Entry
This method exclusively focuses on personal accounts and lacks information regarding sales, purchases,cash, and bank balances. Consequently, it is not a practical choice as it does not offer insights into cash-related or day-to-day transaction details.
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Simple Single Entry
This accounting approach follows a double-entry system, but it restricts itself to only two accounts: the personal account and the cash account. Consequently, entries are exclusively recorded within these two accounts, with no consideration for any other accounts.
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Quasi Single Entry
In addition to personal and cash accounts, this accounting method also keeps track of various subsidiary accounts, including sales and purchase accounts, as well as bill books. Discounts are documented within the personal account, and it also provides essential data such as wages, rent, and salaries. This approach serves as an alternative to the double-entry accounting system.
What is the Difference Between Single-Entry and Double-Entry?
Number of Entries
Single-entry bookkeeping involves a solitary entry for each transaction, whereas double-entry bookkeeping entails two entries for each transaction—a debit and a credit. The debit is logged into one account, while the credit is recorded in a separate account. In contrast, single-entry bookkeeping relies on just one account for each transaction.
What is Recorded
Single entry system of bookkeeping is cash-basis accounting, a methodology named after its emphasis on tracking cash inflows (revenue) and cash outflows (expenses). It’s important to note that “cash” in this context encompasses physical currency, checks, credit card payments, and electronic fund transfers, such as debit or wire transfers.
Conversely, double-entry bookkeeping typically employs accrual accounting, which incorporates five fundamental accounts: assets, liabilities, equities, revenue, and expenses. Single-entry bookkeeping, in contrast, exclusively utilizes the last two accounts.
How Transactions Are Recorded
Small businesses employing the single-entry system log revenue upon its receipt and document expenses when they are disbursed. In contrast, enterprises utilizing the double-entry system document revenue when it is earned, irrespective of when it is received. Likewise, they record expenses when they become due, regardless of when they are actually paid.
Conclusion
To sum up, bookkeeping holds significant importance in ensuring the precision of financial records, but numerous small businesses struggle to execute it effectively. Effective bookkeeping can assist in various aspects, such as budget preparation, verifying tax compliance, assessing business performance, and facilitating informed decision-making.
It’s worth noting that double-entry bookkeeping and single-entry system of bookkeeping are advantageous. Most business owners discover that one method aligns better with their requirements. So, depending on your preference for simplicity, level of detail, and potential accounting insights, you may find a single-entry system more suitable. Conversely, a double-entry system may be the better choice.
FAQs on Single- Entry Accounting
What are the disadvantages of single-entry accounting?
Single-entry accounting leads to inadequate records that lack the capability for comprehensive financial analysis and reporting. Furthermore, it lacks consistency and adheres to no specific set of rules or standardized formats, rendering it unscientific.
What are the advantages of single-entry accounting?
Single-entry accounting is exceptionally straightforward and cost-effective, making it accessible for anyone to manage without the need for a professional accountant. It is also convenient for small businesses.
Is single-entry accounting better than double-entry accounting?
The single-entry accounting system is practical primarily for very small businesses during their early stages of development. However, if a founder envisions and anticipates business expansion, it is highly advisable to transition to double-entry accounting.