Single Entry System in Accounting

What is Single Entry System?

Single entry system is a system under which sometimes both aspects of a transaction are recorded, sometimes only one aspect of a transaction is recorded and sometimes complete transaction is not recorded.

Introduction to Single Entry System in Accounting

In small businesses, there is a major problem that due to shortage of time and experience, these cannot maintain full accounting records under double-entry system. Furthermore, these cannot afford to hire outside staff to keep such record. But every business needs to know about its trading result after specific intervals. So we can say that any set of procedures which ascertain the profit or loss of a business and does not maintain its record under double entry system is generally referred as “Single Entry System”. Hereby another point is important to know that single entry does not mean single entry of a transaction but only indicates incomplete records. In fact, Single Entry is a mixture of double-entry, single entry and no entry.

Under this system some transactions are completely recorded e.g. cash allocated from debtors is recorded in debtors account as well as cash account. Also some transactions are partially recorded e.g. cash purchases, etc. Likewise some transactions are not recorded at all e.g. Bad Debts, Depreciation, etc.

In nut shell it can be concluded that single entry is a system in which accounting records are not recorded exactly like Double Entry System. As the records are not kept under double entry system, we can say that these are incomplete records and therefore trial balance cannot be prepared. This can result in frauds and misappropriation.

Types of Single Entry System

Single entry system can be classified into three types:

(1). Pure Single Entry System

Under this system only Personal Accounts are kept whereas, Nominal and Real Accounts are not kept.

(2). Simple Single Entry System

Under this system, Personal Accounts and Cash Book are kept.

(3). Quasi Single Entry System

Under this system, some subsidiary books along with personal accounts and cash book are kept.

Features of Single Entry System

  • As the owners or partners of the small businesses can directly control its affairs, so this system is useful for these types of businesses.
  • Normally under single entry system, only personal accounts are taken whereas the impersonal accounts are not recorded at all.
  • This system is not governed by a set of definite rules so we can say that this is a flexible and changeable system.
  • This system can help in calculating the profit or loss but not its composition.
  • As under this system, records are incomplete, due to which trial balance cannot be prepared. In this way, the arithmetical accuracy of the work done cannot be calculated.
  • Under this system balance sheet cannot be prepared as there is absence of ledger and trial balance.
  • This system is a mixture of double-entry, single entry and no entry.
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Limitations of Single entry System

  • As trial balance cannot be prepared so the arithmetical accuracy of the work completed cannot be checked.
  • This system gives way to frauds and misappropriations.
  • Under this system nominal accounts are not maintained due to which final accounts cannot be prepared. Due to this, various important ratios like operating cost ratio, Gross
  • Prot Ratio etc. cannot be computed.
  • Due to incomplete records, proper appraisal of the financial position of a business is impossible.
  • Because of legal restrictions, no limited company can keep records under this system.

Difference between Single Entry and Double Entry System

Double Entry SystemSingle Entry System
(i) In this system, both aspects of entry are recorded.Under this system both aspects of an entry
may not be recorded
(ii) In this system Personal, Real & Nominal are kept.Under this system, only personal accounts are maintained.
(iii) In this system cash book, General Ledger, Debtors Ledger and Creditors Ledger are maintainedIn this system, only debtor’s ledger and creditor’s ledger are kept.
(iv) Under this system, the mathematical accuracy can be checked as trial balance is available.Under this system trial balance cannot be prepared, so mathematical accuracy cannot be checked.
(v) In this system trading, profit & loss account can be prepared.In this system due to absence of trial balance trading and Profit & Loss account cannot be prepared.
(vi) Under this system, various accounting ratios can be computed.Under this system, Important ratios like gross profit ratio, net profit ratio, etc. cannot be computed.
(vii) This is a scientific system and follows a specific set of rules.This system is unscientific and does not follow any set of rules.

How to determine Profit and Loss under Single Entry System

There are mainly two approaches about the determination of profit or loss under single entry system:

(a). The Balance Sheet Approach or Net Worth Method
(b). The Transaction Approach or Conversion Method

(a) The Balance Sheet Approach or Net Worth Approach

If the books of a business are maintained under single entry system then Profit or Loss cannot be calculated using the Trading and Profit & Loss Account. The reason is that record kept under single entry system is incomplete. In order to calculate the profit or loss under single entry system we can use the following fundamental Balance Sheet equation:

Capital (Net Worth) = Assets — Liabilities

This method is also known as Statement of Affairs Method, because under this method two Balance Sheets/Statement of Affairs are prepared. The one Statement of Affairs which will be prepared at the start of the year will give “Opening Capital” whereas, the second Statement of Affairs which will be prepared at the end of the year will give “Closing Capital”.

By comparing the “Opening Capital” and “Closing Capital” we can get the profit or loss. If closing capital is more than opening capital, it shows an increase in capital which means a “Profit”. On the other hand, if “Closing” capital is less than the “Opening Capital” it shows a decrease in the capital which means a loss for the period.

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The above formula can be written down in the form of the following statement:

Single Entry System - Balance Sheet Method


Mr. John, who keeps his books on single entry system, tells you that his capital on 31-12-2019 is $40,500 and on 1st January 2019 was $25,800. He further informs you that he withdraws $3,500 for personal purposes. He invested further capital of $5,000. Besides this, there is no other information.

Required: You are required to prepare Statement of Profit and Loss for the year ended on 31-12-2019.


Single Entry System - Balance Sheet Method Example

Example 2

A trader keeps his books by single entry system. He started his business on 1st January 2019 with a capital of $100,000. On 1st July 2019, he borrowed $40,000 at 10% p.a. on 31st December 2019, his assets and liabilities (besides above) were:

Cash $6,000, Stock in trade $94,000, Debtors $71,000, Furniture $50,000 and Creditors $42,000. Charge 10% depreciation on Furniture.

He has drawn $2,500 for his personal use. During the year he further invested $25,000 through sale of his private property.

Required: Ascertain the Profit or Loss of the trader for the year.


Balance Sheet Method Example


(b). The transaction approach or Conversion Method

This approach is applicable where double-entry system is maintained. In this approach, each and every transaction is analyzed and the net result of the business is calculated. Under this approach following steps are adopted:

(i). First of all, transactions are recorded in the Journal.

(ii). After recording transactions, these are classified into ledger.

(iii). Then to check the arithmetical accuracy of the work done, Trial Balances is prepared from the ledger.

(iv). Adjusting entries are then passed to record the internal transactions like depreciation, etc.

(v). Next step is to prepare the second Trial Balance which is called Adjusted Trial Balance to incorporate adjusting entries.

(vi) From the Trial Balance, Nominal Accounts are transferred to Trading and Profit and Loss Account.

(vii). And finally, Trading and Profit and Loss Account shows Gross Profit and Net Profit of the business.

Conversion into Double Entry System

If the business grow rapidly, then at one stage single entry system is not practicable to continue. In such a situation single entry is admissible to be converted into double entry. Conversion of single entry into double entry may be:

(a). With a Prospective Effect
(b). With a Retrospective Effect
(c). Short Cut Method

(a). Conversion with Prospective Effect

Under the prospective effect, the conversion is to take place from the date on which the arrangements are made for conversion. This ensures that the books may be maintained under double entry system in the future.


In order to convert Single Entry System into double entry with the prospective effect the following requirements will have to be fulfilled:

(i). A statement of assets and liabilities on a given date must be prepared.

(ii). Cash in hand should be counted.

(iii). Bank balance should be verified through bank passbook.

(iv). From personal account, a list of debtors and creditors is to be prepared.

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(v). Valuation of stock and other assets e.g. Machinery, Furniture, etc. must be conducted.

(vi). Outstanding liabilities for salary, rent, etc. must be included.

(vii). The access of assets over liabilities will provide the opening capital.

(viii). Then balance may be entered in journal in the form of opening entries under double entry system.

(ix). All subsequent transactions must be passed through journal and posted into the ledger according to the principles of double entry system.


David keeps his books on the single entry system. The following assets and liabilities as at 1st January, 2019 are available from his records:

Cash in hand: $15,500, Bank Overdraft: $25,000, Stock in trade: $23,300, Creditors (Accounts payable): $12,700, Sundry Debtors (Accounts Receivable): $13,000, Machinery: $55,000, Land & Building: $25,700, Furniture: $9,000, Bills Payable: $7,700.

Required: Convert the single entry bookkeeping system into double entry system.


Conversion of Single Entry into Double Entry System

Journal Entries

(b). Conversion with Retrospective Effect

Under the retrospective effect the conversion may take place with effect from a date already passed.


(i). First of all an opening statement of affairs may be constructed.

(ii). An opening journal entry debiting the respective assets and crediting the respective liabilities may be passed.

(iii). Total credit purchases and total credit sales may be calculated.

(iv). Credit purchases may be posted to purchases account and credit sales may be posted to sales account in the ledger.

(v). The items of Receipts and Payments (debit & credit sides) of cashbook may be posted to the appropriate accounts in the ledger except items relating to personal accounts. These have already been posted to appropriate accounts under single entry system.

(vi). Pick up item from personal accounts for which no double entry has already been affected.

(vii). Any other item which is not dealt with preciously must be carefully picked up and should be incorporated through journal entries.

By adopting the above, we can convert any single entry system into double-entry system. Books keeper can enter and pass all transactions in conformity with double-entry system. As incomplete the records are now completed, so a trial balance can also be prepared which will help in making Trading and Profit & Loss Account and Balance Sheet.

(c). Short Cut Method

The above methods are too much laborious. Instead of using them, we can apply another method which is a short cut way to convert single entry into double entry. That’s why this method is termed as short cut or Abridged Conversion Method.

This method can be used when summary of cash and other transactions are given. Also beginning and ending information regarding Assets and Liabilities should be available. Under this method, trading and Profit and Loss account and balance sheet are prepared. In this system, following items if missing may be found out from the data available.

(i). Opening Capital

(ii). Sundry Debtors

(iii). Credit Sales

(iv). Sundry Creditors

(v). Credit Purchases

(vi). Cash in hand

(vii). Cash at bank

(viii). Cash purchases

(ix). Cash sales

(x). Bills receivable

(xi). Bills payable

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