What is Single Entry System? Meaning, Definition, Importance & Factors

Single entry system is actually an incomplete state of a double entry system. It is also known as “Incomplete Records System”.

Mostly single entry system is used by small business organizations iii order to maintain some important records. The performance of single entry system is not dependable.

Importance of Single Entry System

Following are the salient features of Incomplete records system.

1. An incomplete records system is suitable for sole trading concerns. Limited companies cannot tise this systems due to legal requirements.
2. Only personal accounts are maintained in this system.
3. This system maintains one single cash book which comprises a mix-up of business and private transactions.
4. It does not have uniformity in maintaining the records. It may change from industry to industry as per the firm’s requirements.
5. In this system, systematic and scientific method of accounting recording transactions are not accurate.
6. The data is not recorded in subsidiary books and relevant information can only be stored in vouchers.
7. The determination of profit loss is based on estimates. It does not show the true status of the firms. (i.e. Financial position of the firm).

Reasons of Single Entry System

The incompleteness of Accounting records could be due to the following reasons.

1. The business persons may not maintain proper accounts intentionally so as to avoid taxation.
2. Damage of account books due to flood or fire etc.
3. The business person may be unaware of the separate legal entity assumptions.
4. The business persons may not be aware of double entry accounting principles.

Advantages of Single Entry System

The various advantages of single entry system are as follows.

1. The system is economical to small business entities with few assets and liabilities and limited transactions.
2. Single entry system is quite a simple method for the organizations who do not involve in the complexity of double entry system.
3. Some businessmen intentionally tise this system to avoid taxation.
4. Using this system. it is easier to determine profit or loss.
5. Unlike double entry system, this system does not require practical knowledge of the principles of book keeping.
6. Accounting records can be easily maintained under this system.

Disadvantages of Single Entry System

The following are the disadvantages of single entry system.

1. Single entry system does not record both debit and credit of every transaction. Therefore, it is called “Incomplete Records System”.
2. Frauds can be easily committed due to the absence of proper control and checks.
3. Under this system, The financial position of the business cannot be ascertained because of the absence of real accounts.
4. Joint stock companies do not adopt this system because of legal requirements.
5. This system does not maintain nominal accounts which makes it difficult to prepare the P & L A/c and determine the net profit or net loss of the business.
6. At the time of assessment. it becomes difficult to manage the tax authorities regarding the profit/loss of the business.