Single Entry

Single-entry bookkeeping system also known as Single-entry accounting system is a one sided accounting entry to maintain financial information.

Most businesses maintain a record of all transactions based on the double-entry bookkeeping system. However, many small, simple businesses maintain only a single-entry system that records the "bare-essentials." In some cases only records of cash, accounts receivable, accounts payable and taxes paid may be maintained. Records of assets, inventory, expenses, revenues and other elements usually considered essential in an accounting system may not be kept, except in memorandum form. Single-entry systems are usually inadequate except where operations are especially simple and the volume of activity is low.

This type of accounting system with additional information can typically be compiled into an income statement and balance sheet by a professional accountant.

Advantages

Single-entry systems are used in the interest of simplicity. They are usually less expensive to maintain than double-entry systems because they do not require the services of a trained person.

Disadvantages

Data may not be available to management for effectively planning and controlling the business.
Lack of systematic and precise bookkeeping may lead to inefficient administration and reduced control over the affairs of the business.
Single-entry records do not provide a check against clerical error, as does a double-entry system. This is one of the most serious defects of single-entry systems.
Single-entry records seldom make provision for recording all transactions. In addition, many internal transactions, such as adjusting entries are often not recorded.
Because no accounts are provided for many of the items appearing in both the Income Statement and Balance Sheet, omission of important data is possible.
In the absence of detailed records of all assets, lax administration of those assets may occur.
Theft and other losses are less likely to be detected.

Most of financial accounting is based on double-entry bookkeeping. To understand and appreciate the advantages of double entry, it is worthwhile to examine the simpler single-entry bookkeeping system. In its most basic form, a single-entry system is similar to a checkbook register and is characterized by the fact that there is only a single line entered in the journal for each transaction. In a simple checkbook, each transaction is recorded in one column of an account as either a positive or a negative amount in order to represent the receipt or disbursement of cash. This system is demonstrated in the following example for a repair shop business:



Single Column System
Date Description Amount
Jan 1 Beginning Balance 1,000.00

Jan 2 Purchased shop supplies (150.00)

Jan 4 Performed repair service 275.00

Jan 7 Performed repair service 125.00

Jan 15 Paid phone bill (50.00)

Jan 30 Ending balance 1,200.00





While extremely simple, because the above system uses a single column, only the difference between revenues and expenses is totaled - not the individual values of each. Knowing the individual total amounts of revenues and expenses is important to a business, for example, when formulating a budget. The revenues and expenses also are reported in the income statement. In the above example, the individual revenue and expense amounts can be determined only by sorting through the transactions and tabulating the revenue and expense totals. This process can be designed into the system by using a separate column for revenues and expenses:



Separating Revenues and Expenses
Date Description Revenues Expenses
Jan 2 Purchased shop supplies 150.00

Jan 4 Performed repair service 275.00

Jan 7 Performed repair service 125.00

Jan 15 Paid phone bill 50.00
------- -------
January Totals 400. 200.00






While the above example now uses two columns, it still is considered to be a single-entry system since only one line is used to record each transaction in the cash account. This single-entry system often is expanded to provide more useful information. For example, additional columns can be added to classify the revenues as sales and sales tax collected, and the expenses as rent, utilities, supplies, etc. Some single-entry systems may add dozens of columns for different types of revenues and expenses. Many small businesses utilize such a system. However, even with columns to classify the revenues and expenses, single-entry bookkeeping is limited in its ability to provide detailed financial information. Some disadvantages of a single-entry system include:

Does not track asset and liability accounts such as inventory, accounts receivable and accounts payable. These must be tracked separately.

Facilitates the calculation of income but not of financial position. There is no direct linkage between income and the balance sheet.

Errors may go undetected and often are identified only through bank statement reconciliation.

Because of these drawbacks, a single-entry system is not practical for many organizations such as those having many thousands of transactions in a reporting period, significant assets, and external suppliers of capital. The more sophisticated double-entry bookkeeping system addresses the more demanding needs of such businesses.