Merits and Demerits of Single Entry System

Under this system, a Cash Book is prepared which shows the receipts and payments of cash transactions and no other ledger is maintained except a rough book for recording transactions relating to personal accounts. It is actually called ‘Pure Single Entry’.

Under this method, real accounts and nominal accounts are not recognised. In short, these transactions are only recorded in Cash Book without, however, applying the principles of double entry. That is why it is said: The system which does not totally follow the principles of Double Entry System is called Single Entry System’.

For recording transactions relating to personal accounts, however, double entry system is followed, say, when cash is received from a customer—it is recorded in Cash Book first and, thereafter, in the personal account of the customer concerned, i.e., recorded in two places—like double entry basis.

Again, no entry is recorded in the books of accounts for any internal transactions, like depreciation on assets. Therefore, it may be said that Single Entry System is nothing but an admixture of Single Entry, Double Entry, and no entry.

According to R. N. Carter, Single Entry cannot be termed as a system, as it is not based on any scientific system like Double Entry System. For this purpose, Single Entry is nowadays known as Preparation of accounts from incomplete records.

Advantages of Single Entry System

Main benefits or advantages of single entry system of book keeping can be expressed as follows:-

1. Simple and Easy Method Of Recording Transaction

Single entry system does not need any special accounting knowledge and personnel to record financial transaction of the business. It can be maintained easily by the business owner. So, this system of book-keeping is simple to maintain and easy to practice.

2. Economical

This is another benefit of single entry system. It is a less costly system of recording business transactions compared to double entry system. It is economical because of limited number of transactions and limited number of books (only personal account and cash account).

3. Suitable For Small Business

Double entry system is very expensive and time consuming because of large numbers transactions and various books of accounts. So, small firms with limited financial transactions prefer single entry system of book keeping.

4. Time Saving

Single entry system is less time consuming because of limited numbers of books and less number of business transactions.

5. Easy To Determine Profit or Loss

It is very easy to ascertain profit or loss of the business under single entry system of book keeping. Profit or loss can be obtained by comparing the ending balance with the beginning of the business for the specific accounting period. 

Disadvantages of Single Entry System

Major drawbacks or disadvantages of single entry system of bookkeeping can be expressed as follows:

1. Incomplete System of Accounting

Single entry system ignores dual aspects (debit and credit) of transactions. It also ignores nominal account and real accounts. So, it is an incomplete system of recording transactions.

2. Unsystematic and Unscientific System

Single entry system does not follow proper accounting rules and principles to record the financial transactions. So, it is unsystematic and unscientific system of recording transactions which cannot be taken as authentic source.

3. No True Profit or Loss

Trial balance, trading account and profit and loss account cannot be prepared with the help of single entry system. So, correct profit or loss amount cannot be obtained in the absence of these account.

4. No True Financial Position

Balance sheet cannot be prepared with the help of single entry system because it ignores real accounts. So, true financial position of the firm cannot be revealed in the absence of balance sheet.

5. No Arithmetical Accuracy

This system ignores debit and credit principles of accounting. So, the trial balance cannot be prepared with only one aspect of transaction. Therefore, arithmetical accuracy is not possible in the absence of trial balance.

6. Unacceptable to Tax Authorities

Because of incompleteness, unscientific and lack of accuracy, tax authorities and other business agencies do not rely on single entry system.

7. Chance of Fraud and Errors

There is very high chance of occurrence of frauds and errors under single entry system because of lack of proper internal check system.

8. Unsuitable for Planning and Control

Single entry system does not provide accurate and adequate information to the management. So, it does not support top level management for future planning and effective control.

9. Not Suitable for Large Business Firms

Single entry system is not suitable for large business firms having large number of financial transactions.