Single-Entry System in Accounting Principles of accounting

What is "Single-Entry" Accounting?

Single-entry accounting is a form of bookkeeping and accounting in which

each financial transaction is a single entry in a journal or transaction log. As a result, the
accounting system is called, not surprisingly, a single-entry system. And, the approach is
also known as single-entry bookkeeping.

Single-Entry vs. Double-Entry Accounting

The single-entry approach contrasts with double-entry accounting, in which every

financial event brings at least two equal and offsetting entries. One is a debit (DR) and the
other a credit (CR). As a result:

• Firms using the double-entry approach report financial results with an accrual
reporting system.
• Firms using single-entry approach are effectively limited to reporting on a cash
basis.

The Single-Entry Approach is Simpler Than single-entry

On the positive side, single-entry accounting is simple and more straightforward to use
than the double-entry approach. And, the single-entry approach does not require
background or training in accounting. Nevertheless, the overwhelming majority of firms,
worldwide, use double-entry not single-entry accounting.

The Nature of Single-Entry Systems

The single-entry approach is very similar to the check register that individuals use
to keep track of checks, deposits, and balances for a personal checking account. In
both cases, users merely record the date, amount, and name of each transaction.
Exhibits 1 and 2, below, show how the single-entry record might look for a few
days transactions for a small business.
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Single-Entry System in Accounting Principles of accounting

Example: Three Column Single-Entry Record

Example: Five Column Single-Entry Record

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Single-Entry System in Accounting Principles of accounting

When and Where is Single-Entry Accounting Sufficient?

Single-entry bookkeeping and accounting can be adequate for a small business practicing
cash basis accounting. Small firms may, in fact, prefer single-entry accounting over a
double-entry system when all or most of these conditions apply:

• The Company uses cash basis accounting, not accrual accounting.

• The firm has few financial transactions per day.
• The company does not sell on credit. Customers must pay at the time of the sale
either in cash or, by bank transfer, 3rd-party debit card, 3rd-party credit card, or by
writing a check. The firm does not deliver goods or services and then invoice
customers for payment later.
• The firm has very few employees.
• The company owns few valuable business-supporting physical assets.

For example, it may hold product inventory, office supplies, and cash in a bank
account. But it does not own buildings, substantial office furniture, large computer
systems, production machinery, or vehicles.

• The company is privately held or operates as a sole proprietorship or partnership.

As a result, the firm need not publish an Income statement, Balance sheet, or
other financial statements that are mandatory for public companies.

What Are the Advantages of Single Entry System?

The advantages of a single entry system are as follows:

• Simplicity. The system is very simple to execute, very little needs to be recorded
(meaning, a lot of time saved).
• Cost savings. A business does not need special software or complicated programs
to develop a single entry system spreadsheet. They do not need staff with an
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Single-Entry System in Accounting Principles of accounting

accounting background, nor do they need to contact a professional accountant or

bookkeeper for their services. This is because a single entry system does not need
to self-balance.
• Convenience. A business is unlikely to become overdrawn on its bank account,
since the balance is continually updated. At a glance, a small business owner can
see their balance at any time.

Single entry records can even be written down, if updated and maintained properly. You
may still see some very small businesses recording entries this way in a journal.

What Are the Disadvantages of Single Entry System?

• Insufficient data to generate proper financial statements. You cannot generate the
following from data entered via a single entry system:

– Profit and Loss statement (P&L) = income statement

– Balance Sheet
– Income statement
– Cash Flow statement
– Equity statement

This is why a single entry system will not work or even be considered by larger
companies.

• Inability to strategize. Without proper bookkeeping, such as that which a Double

Entry system provides, management cannot properly assess the company’s
financials and plan change for the future. This could affect revenue for the
organization and its ability to continue to operate.

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Single-Entry System in Accounting Principles of accounting

• Tax problems. A single entry system may help in general with bookkeeping, but it
is not acceptable to tax authorities due to the incomplete nature of the data
recorded.
• Theft. Criminal activity is less likely to be detected (this is because assets are not
tracked).
• Errors. Mistakes are much more likely because the system does not need to self-
balance. This means some mistakes in recording a transaction may take a long
time to find, or are never discovered. An audit would have to be done manually,
line by line.

The size of the business and the amount of income and expenses that it incurs will really
help it determine whether a single entry system is appropriate or whether something
more detailed is needed.

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Single-Entry System in Accounting Principles of accounting

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