Incomplete Records (or) Single Entry System

Single entry system is an incomplete form of recording financial transactions. It is the system, which does not record two aspects or accounts of all the financial transactions. It is the system, which has no fixed set of rules to record the financial transactions of the business. Single entry system records only one aspect of transaction. Thus, single entry system is not a proper system of recording financial transactions, which fails to present complete information required by the management. Single entry system mainly maintains cash book and personal accounts of debtors and creditors. Single entry system ignores nominal account and real account except cash account. Hence, it is incomplete form of double entry system, which fails to disclose true profit or loss and financial position of a business organization.

Meaning:

 

Small businesses, such as shopkeepers, market stall holders, hairdressers, landscape gardeners, do not always have the knowledge, expertise and time to keep a complete set of accounting records. However, these businesses will need to have financial statements prepared annually (for tax purposes if nothing else).

WHO KEEPS SINGLE ENTRY SYSTEM?

High cost of record keeping Lack of knowledge Time Lack of awareness for the need of financial

recordsFound in Small Businesses and hence can be termed as Micro Business Accounting (MBA).

Why Incomplete Records?

1) This system is a mixture of (i) double entry (ii) Single entry and (iii) no entry.

2) This system is suitable for small business.

3) In this system, generally personal Account are kept but real and Normal Account are ignored.

4) In the absence of record of the two-fold aspect of every transaction, it is not possible to prepare a trial balance and check the arithmetical accuracy of the books of account.

5) Under this system the profit or loss can be found out but its composition will not be available.

 

Features

Types of Single Entry1) Pure Single Entry System:-Under this type of Single entry,

the dual aspect of each transaction is ignored. Only personal account of debtors and creditors are kept but no record is kept for Real or Nominal Account.

2) Simple Single Entry Sysem:-Under this system, (i) Personal Account and (ii) Cash book are kept.

3) Quasi Single Entry System:-Under this System, (i) Personal Account, (ii) Cash book and (iii) Some other subsidiary books are kept.

 

ADVANTAGES OF SINGLE ENTRY

• It is easy and simple method of recording business transactions.

•Less expensive as qualified staff is not required.

•Suitable for small businesses where cash transactions occur and very few assets and liabilities exists.

•Flexible method as there are no set procedures and principles followed.

•No double entry, thus Trial Balance cannot be prepared to check the arithmetical accuracy of books of accounts. • Information related to assets and liabilities cannot be reliable because respective accounts have not been maintained. •True Profit and Loss cannot be ascertained. •Comparison of accounting performance with previous year or other firms not possible as any standard principle or procedure is not followed.

 

DISADVANTAGES OF SINGLE ENTRY

It is not possible to prepare a regular Trading and Profit & Loss A/c, because no record is kept of the nominal A/cs. Therefore, the net profit for a particular period can be ascertained in a rough manner by comparing the financial position of the business at the commencement of the period with the financial position at the end of the period. This requires the preparation of two statements of affairs, one in the beginning and the other at the end. 

Ascertaining profit under the single entry system

• In this method the capital of the business in the beginning of the period is compared with its capital at the end of the period. The difference represents profit or loss during the period.• If the closing capital is more than opening capital, it shows a profit for the business.• If the closing capital is less than opening capital, the business had a loss.•Opening balance of capital can be ascertained by preparing an ‘Opening Statement of Affairs’. Statement of Affairs is quite similar to a Balance Sheet (NOT exactly).

Statement of Affairs method

Format

Format

Differences between Statement of Affairs and Balance Sheet

BASIS FOR COMPARISON STATEMENT OF AFFAIRS BALANCE SHEET

Meaning Statement of Affairs is a statement showing assets, liabilities and capital of the entity prepared on the basis of a single entry system of bookkeeping.

A Balance Sheet is a statement showing assets, liabilities and equity of the company prepared on the basis of the double entry system of bookkeeping.

Part of Financial Statement No Yes

Objective To find out the opening or closing capital.

To show the company's financial position.

Estimation of Values Yes No

Accuracy Very less More

Compulsion of Preparation Yes No

Format Not specified Specified

Preparing Trading and Profit & Loss A/c and the Balance Sheet

To prepare proper Trading and Profit & Loss A/c and the Balance Sheet one needs complete information regarding expenses, incomes, assets and liabilities. In case of incomplete records, details of some items like creditors, cash purchases, debtors, cash sales, other cash payments and such receipts are easily available, but there are a number of items the details of which will have to be ascertained in an indirect manner by using the logic of double entry.

Ascertainment of Credit Sales

The amount of credit sales is also not usually available from incomplete records. Some other information on related to debtors may also be missing. Therefore, if the total debtors account is prepared to find out credit sales or any other missing figure, as the case may be, can be traced out as the balancing figure.

Total Debtors Account

Date Particulars Amount Date Particulars Amount

To Opening balanceTo Credit salesTo Bank (Cheque dishonoured)To B/R dishonoured  - if any

--------------------

By Cash received from debtorsBy B/R ReceivedBy Returns inwardsBy Discount allowedBy Bad debtsBy Bank (Cheque Received)By Closing Balance

--------------------

Ascertainment of Credit Purchases

The amount of credit Purchases is also not usually available from incomplete records. Some other information on related to Creditors may also be missing. Therefore, if the total Creditors account is prepared to find out credit purchase or any other missing figure, as the case may be, can be traced out as the balancing figure.

Total Creditors AccountDate Particulars Amount Date Particulars Amount

To Cash paid to creditors To B/P grantedTo Returns outwardsTo Discount receivedTo Bank (Cheque issued)To Closing Balance

--------------------

By Opening balanceBy Credit purchasesBy B/P dishonoured  - if anyBy Bank (Cheque dishonoured)

----------------------

Ascertainment of Bills Receivable and Bills payable

while all details relating to bills receivable and bills payable are available but the figures of the bills received and bills accepted during the year are not given. In such a situation, total bills receivable account and total bills payable a/c can be prepared and the missing figures ascertained as the balancing figures.

Bills Receivable Account

Date Particulars Amount Date Particulars AmountTo Balance b/dTo Sundry Debtors (Bills Received)

------------------------

By BankBy DiscountBy BalaBy MuraliBy Bills Receivable (Dishonoured)By Balance c/d

--------------------

Bills Payable Account

Date Particulars Amount Date Particulars AmountTo Cash (Bills honoured)

To Sundry Creditors (Bills dishonoured)

To Balance c/d------------------

By Opening Balance

By Sundry Creditors (Bills accepted)

------------------

Ascertainment of Missing Information through Summary of Cash•The amount paid to creditors or the amount received from debtors or the opening or closing cash or bank balance may be missing. To ascertain any missing item of receipt or payment, we may prepare a cash book summary showing all receipts and payments during the year and the balancing figure is taken as the amount of missing item. •Both amount paid to creditors and that received from debtors are missing, then any one of these may be obtained first through the total creditors or total debtors account, as the case may be, and the other missing information ascertained from the cash book summary in the same way as stated earlier.

Components of the trial balance and their sources of information

N. Bala Murali Krishna