Single Entry versus Double Entry System of

Bookkeeping:
Learning Objectives:

1. What is the difference between single entry system and double entry system
of bookkeeping?
2. What are the advantages of double entry system over the single entry system
of bookkeeping?

Single entry system of bookkeeping which does not follows double entry system and
as such, does not record or give effect to the two fold aspect of each and every
transaction. Under this system of book keeping, generally a cash book and books to
record personal accounts are only maintained. It is not really a system because
under this system there may be no record of the some of the transactions and only
partial record of some others. As such, single entry system of book-keeping is not
perfect and frauds and mistakes can hardly be detected. This system is discussed in
greater detail on Single Entry System Page. Proper results cannot be obtained by its
use.

In single entry only we can journalize the transaction of one side where in double
entry preparing ledger accounts of both the side.

Single entry records only one aspect of transaction, such as:

Cash received from sale is recorded in cash register only

Goods sold on credit are recorded in the individual's account only

When cash is received from the customer, to whom the something was sold on credit,
the receipt may be just recorded in the account of individual only

Double entry records both aspects of transaction, such as:

When good are sold on cash the two aspects of the transaction are - the seller has sold
goods and received cash against them. The goods sold are benefit transferred to the
purchaser (Credit) whereas the cash received if the benefit against the goods sold
(Debit).

When the goods are sold on credit the benefit given is the same i.e. goods sold but the
benefit received is not cash but a right to receive cash from the customer. Therefore,
in this case Debit is given to customer's account (account receivable) instead of
cash.

When cash is received from the customer the right to receive cash ceases. So, the
benefit received is cash and benefit transferred is the right to receive cash. Here
cash will be debited and customer will be credited.

Single Entry System is a method of maintaining accounts without strictly following

the principles of double entry. It is a disorganized way of writing some entries and
excluding some others. Since all transactions are not accounted for scientifically and
completely, the method is known as unscientific and incomplete records.
According to Carter, Single Entry System is "a method or variety of methods
employed for recording some transactions which ignore the two-fold aspect and
consequently fails to provide the businessmen with the information necessary for him
to be able to ascertain the position."

De-merits of single entry system

1. It is not a scientific method of accounting because it does not record the two-fold
aspect of each transaction.
2. No trail balance can be prepared as it does not record the dual aspect of each
transaction, so the arithmetical accuracy of the books cannot be checked.
3. The results of trading obtained under single entry system are incomplete since
many items are based on the proprietor's memory.
4. Profit and Loss Account cannot be prepared since Nominal and Real Accounts are
not recorded separately.
5. There is no provision for checks and counter-checks and hence frauds are easily
 committed.

Merits of single entry system

1. It is economical, therefore useful to petty traders and small firms.

2. Persons not having proper knowledge of double entry system can conveniently
make use of this system.
3. It is useful in unforeseen events.
4. The system is quite useful in finding out the position of the business in the event
of loss of property, stock, books of accounts, etc.

Salient features of Single Entry System

1. The cash book maintained under this system contains not only the business
transactions but also the private transactions. No distinction is made between
business and private transactions.
2. Generally, Personal Accounts are maintained but not the Real and Nominal
Accounts. Therefore, it is a record of incomplete and disjointed information.
3. It is a system which lacks uniformity because it is double entry twisted to the
convenience of the person concerned. No hard and fast rules are followed for
recording business transactions.

Main object of converting the books of accounts from single entry to double
entry

1. To record both the aspects of the transaction i.e. debit and credit.
2. To record real, personal and nominal account.
3. For a scientific record of business transactions.
4. To prepare Trading and Profit and Loss Account and the Balance Sheet.
5. To prepare a Trail Balance.

Differences between single entry system and double entry system

1. Under single entry system, both the aspects of every transaction are not always
recorded. On the other hand, under double entry system a complete and detailed
record of every transaction is made taking into account both debit and credit
aspects.
2. [As a result of (1)] It is not possible to test the arithmetical accuracy of the
accounts under single entry system. However it is possible to test the arithmetical
accuracy of accounts under double entry system by preparing the trail balance.

Advantages of Double Entry over Single Entry System:

1. In double entry system of bookkeeping as two fold aspect of each transaction
is recorded in the books, a trial balance can be prepared to prove the
arithmetical accuracy of the transaction. No trial balance can be prepared
under single entry system and hence accuracy of books cannot be proved.
2. In double entry system the risk of fraud or its non discovery is less. But under
single entry system chances of fraud or mistake remaining undetected are
very high.
3. In double entry system a trading and profit and loss account can be prepared
very easily. The proprietor can know the profit earned or loss suffered by has
business. Under single entry system no trading and profit and loss account
can be prepared scientifically and, hence, the proprietor will have no firm idea
of profit earned or loss suffered.
4. In double entry system a balance sheet can be prepared from the books of
accounts. The correctness of assets and liabilities can be proved. The balance
sheet called statement of affairs in a single entry system is prepared in an
unsatisfactory manner. The assets and liabilities are not proved from records.
Hence the correctness of assets and liabilities cannot be relied upon.

Double Entry Bookkeeping Revision Questions

1) Which one of the following categories of account is debited when it is increased?

a. Revenue
b. Purchases
c. Source of Funds
 d. Liability

2) Which one of the following categories of account is credited when it is

increased?

a. Revenue
b. Purchases
c. Asset
d. Expenses

3) Which one of the following categories of account is credited when it is

decreased?

a. Liabilities
b. Revenue
c. Source of funds
d. Expenses

4) When an account in the asset category is decreased it is credited?

a. TRUE
b. FALSE

5) Which one of the following categories of account is debited when it is decreased?

a. Liabilities
b. Asset
c. Purchases
d. Expenses

6) You buy a computer and pay immediately by cheque .Which one of the following
pairs of accounts is affected?

a. Raw Materials and Bank

b. Loan and Equipment
c. Sales and Equipment
d. Equipment and Bank

7) You borrow Rs.5000 and put it in your current account. Which one of the
following pairs of accounts is affected?

a. Rent and Bank

b. Loan and Bank
c. Loan and VAT
d. Trade Creditors and Bank

8) You make a cash sale for £200. Which one of the following pairs of accounts is
affected?

a. Rent and Bank

b. Purchases and Bank
c. Bank and Sales
d. Sales and Trade Debtors

9) The Accounting Equation can be expressed as Assets minus Liabilities equals

Source of Funds.

a. TRUE
b. FALSE

10) In the double-entry bookkeeping system, every transaction affects two

accounts. Which one of the following statements is true?

a. If one of the two accounts is in one of the PEA categories, the other must be
in one of the RLS categories
b. If one of the accounts decreases in value, the other must increase
c. Both accounts must increase in value
d. None of the above

Double Entry Bookkeeping Revision Answers

1) Option (b) is correct. Purchases accounts are debited when they increase in
value.

2) Option (a) is correct. Revenue accounts are credited when they increase in
value.

3) Option (d) is correct. Expenses accounts are credited when they decrease in
value.

4) Option (a) is correct. This is TRUE.These accounts are credited when they
decrease in value.

5) Option (a) is correct. Liability accounts are debited when they decrease in value.

6) Option (d) is correct. The Bank account must be involved since you paid by
cheque. A computer purchase would not be recorded under raw materials.

7) Option (b) is correct. The Bank account must be involved since you put money
into the bank. You borrowed money, so the Loan account is involved.

8) Option (c) is correct. The Bank account must be involved since you put money
into the bank. You made a sale, so the Sales account is involved.

9) Option (a) is correct. This is True. This is one way of stating the
equation. Another is Assets = Liabilities + Source of Funds. What the business
owns, the business owes.

10) Option (d) is correct. Option (a) is not correct, both accounts can be in the PEA
category. For example, the payment of an expense involves an Expense account and
an Asset account (e.g. the Bank account). Option (b) is not correct, both accounts
can increase in value. For example a loan would increase a Liability account and
increase an Asset account (e.g. a Bank account).