Difference between Single Entry System and Double Entry System
Many times, small businesses frequently fail to maintain a thorough accounting system based on the double entry principle. The businessman is usually satisfied with the bare minimum of facts, such as cash and bank account balances and whether or not he has made a profit or loss. They keep rough or sketchy records that serve just a limited purpose. This system of accounting, which is not based on the double entry principle, is commonly known as the Single Entry System. In this particular blog, we have discussed how the single entry system differs from the double entry system.
Double entry system
The double entry system recognizes that every business transaction has two sides and keeps track of both sides of every transaction. In this method, every transaction will debit one account while crediting the other. The essence of accounting lies in determining which of the two accounts is affected by a transaction and which account is to be debited and which account is to be credited out of these two accounts. The impact of every transaction can be accurately known on the assets, liabilities, income, expenses, and capital of an enterprise.
This accounting system maintains a detailed record of all business transactions. There are both personal and impersonal accounts kept. Thus, it is simple to collect all information about the value of assets and earnings generated during the year. Because every debit has a commensurate credit and vice versa, it provides a check on the arithmetical accuracy of books.
The double entry system is the backbone of accounting and is the standard accounting practice followed by all. The system allows businessmen to oversee their business activities by comparing purchases, sales, expenditures, income, and so on for the current year with those of past years. The balance sheet can be prepared at any moment in time or on any date, and it will display the exact amounts of assets, liabilities, and capital.
Single entry system
The concept of ‘Single Entry’ refers to a technique of keeping accounts that is simple and convenient for a business but does not strictly adhere to the principles of the Double Entry System. Only the most basic accounts, which are absolutely essential in the opinion of the business, are kept under this system (i.e., usually the cash book/bank account and personal accounts of debtors & creditors are maintained).
Other impersonal accounts, such as real and nominal accounts, may not be kept. In other words, a Single Entry System is an insufficient method of accounting. This approach is only appropriate for small businesses that operate on a sole proprietorship or partnership basis. Large enterprises, particularly joint-stock companies, cannot afford to keep books according to this inaccurate and unscientific system. Due to the absence of nominal & real accounts in the company’s ledger, it is considerably more difficult to prepare Trading, Profit and Loss Account, and Balance Sheet.
In addition, this system typically adheres to the notion of ‘cash basis of accounting,’ hence no accrual or non-cash entries are attempted. Depreciation, provision for expenses, and accrued income, for example, have no place in such a system.
For getting information under this system, one must rely on original vouchers. For instance, in the case of credit sales, the proprietor may keep the invoice without recording it anywhere, and the sum of the invoices at the end of the year offers an estimate of the business’s total credit sales.
The most basic difference
The fundamental difference between a single entry and a double entry system is linked to the recording of dual aspects of a transaction. We know that the double entry system records the dual aspect (both debit and credit) of each and every transaction in the ledger accounts. However, since the single entry system operates on the maintenance of only a few ledger accounts, it does not record both aspects of a business transaction. While some transactions may be recorded in their entirety, some others may have only one aspect being recorded, while a few others may not be recorded altogether.
Comparison between Single Entry System and Double Entry System
The following is the list of distinctions that can be made between the two systems of keeping records:
| Basis | Double Entry System | Single Entry System |
| Subsidiary books | Under the double entry system, all subsidiary books such as sales books, purchases books, etc. are kept. | None of these subsidiary books except the cash book which is also considered a part of the ledger is kept. |
| Basis of accounting | Normally based on the accrual basis of accounting. | Based on the cash basis of accounting. |
| Account details | The accurate details with regard to any account can be easily obtained. | Such details are not always available. |
| Nature | It is a comprehensive, scientific, and efficient method of book-keeping. | It is an incomplete and unscientific method of book-keeping. |
| Dual aspect | Every transaction is recorded in its entirety, i.e., both aspects of a transaction are recorded. | Only a part of a transaction is recorded, i.e., two aspects of every transaction are not recorded. |
| Variation | Uniformity is ensured because all firms follow the same principles of accounting and related accounting standards. | The Single Entry System differs from one business to another. As a result, it lacks consistency. Each business may choose to maintain the accounts as per its own choice. |
| Rules | This system follows the fundamental rules of debit and credit. | This system has no hard and fast rules or principles. |
| Trial Balance | To verify the arithmetical accuracy of transactions, a Trial Balance is prepared. | It is not possible to prepare a Trial Balance since both the aspects of each and every transaction are not recorded. |
| Scope for fraud | There is little room for misappropriation and fraud because accounting is foolproof. | Because accounting is incomplete and faulty, there is a lot of room for errors, misappropriation, and fraud. |
| Accounts | All real, personal as well as nominal accounts are maintained. | Only personal accounts and the cash book are maintained. |
| Trading Account | Since all accounts of purchases, sales, expenses, sales returns, purchases returns, etc. are maintained, a Trading and Profit & Loss Account can be prepared to know the performance of the business during the year. | As accounts of purchases, sales, expenses, sales returns, purchases returns, etc. are not maintained, it is not possible to prepare a Trading and Profit & Loss Account. |
| Balance Sheet | As the book values of all assets, liabilities, and capital are readily available, a Balance Sheet can be prepared to determine the financial position of the business on a particular date. | Due to the lack of maintenance of all accounts, it is not possible to prepare a Balance Sheet. As a replacement, a Statement of Affairs is usually prepared based on book values of some accounts that are maintained, estimates of capital, judgment from available records, and based on the proprietor’s memory. |
| Suitability | This system is suitable for all types of businesses, whether small or big. | This system is suitable only for small and tiny businesses where the volume of transactions is less. |
| Economical | It is complicated, expensive, and necessitates expert knowledge and experience, as well as detailed records of accounting. | It is simple, inexpensive, and does not necessitate professional knowledge or thorough books of accounts. |
| Personal transactions | Personal transactions are strictly kept separate from the business. | It is very much likely that the personal transactions of the proprietor can get mixed with business transactions. |
Conclusion
The Single Entry System and Double Entry System are the two methods for keeping records. The single entry system seems to be time-saving and cost-effective, but it is unscientific because some transactions are not recorded at all and some others are only partially recorded. The double entry system, on the other hand, is based on scientific principles and is thus adopted by the majority of corporate establishments. Further, external agencies like banks, before deciding whether to lend money to a business or not, can place more reliance on financial information taken from a double entry system.
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