Single-entry accounting system
Encyclopedia
A single-entry bookkeeping system or single-entry accounting system is a method of bookkeeping relying on a one sided accounting entry to maintain financial information.

Overview

Most businesses maintain a record of all transactions based on the double-entry bookkeeping system
Double-entry bookkeeping system
A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts....

. However, many small, simple businesses maintain only a single-entry system that records the "bare-essentials." In some cases only records of cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

, accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...

, accounts payable
Accounts payable
Accounts payable is a file or account sub-ledger that records amounts that a person or company owes to suppliers, but has not paid yet , sometimes referred as trade payables. When an invoice is received, it is added to the file, and then removed when it is paid...

 and taxes paid may be maintained. Records of asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s, inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...

, expense
Expense
In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...

s, revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....

s 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
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...

 and balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...

 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.

According to the U.S. Internal Revenue Service: "A single-entry system is based on the income statement (profit or loss statement). It can be a simple and practical system if you are starting a small business. The system records the flow of income and expenses through the use of: 1. A daily summary of cash receipts, and 2. Monthly summaries of cash receipts and disbursements." (IRS Publication 583: Starting a Business and Keeping Records, 2007)

Additionally, in the Internal Revenue Manual 4.10.3.13.2 (03-01-2003), it is stated:"1. The single entry system of recordkeeping does not include equal debits and credits to the balance sheet and income statement accounts. A single-entry accounting system is not self-balancing. Mathematical errors in the account totals are thus common. Reconciliation of the books and records to the return is an important audit step. 2. A single-entry system may consist only of transactions posted in a notebook, daybook, or journal. However, it may include a complete set of journals and a ledger providing accounts for all important items. 3. A single-entry system for a small business might include a business checkbook, check disbursements journal or register, daily/monthly summaries of cash receipts, a depreciation schedule, employee wages records, and ledgers showing debtor and creditor balances."

Disadvantages

  1. Data may not be available to management for effectively planning and controlling the business.
  2. Lack of systematic and precise bookkeeping may lead to inefficient administration and reduced control over the affairs of the business.
  3. 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.
  4. Single-entry records seldom make provision for recording all transactions. In addition, many internal transactions, such as adjusting entries
    Adjusting entries
    In accounting/accountancy, adjusting entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred. The revenue recognition principle is the basis of making adjusting entries that pertain to unearned and...

     are often not recorded.
  5. 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.
  6. In the absence of detailed records of all assets, lax administration of those assets may occur.
  7. Theft and other losses are less likely to be detected.

See also

  • Dome Publishing
    Dome Publishing
    Dome Publishing, founded in 1940 by CPA Nicholas Picchione, publishes a series of ledgers designed to simplify the bookkeeping process for small businesses , as well as software based on their ledgers and several ergonomic products for use in business and other settings...

    , publishers of a popular pencil-and-paper modified-single-entry accounting system
  • Internal Revenue Service
    Internal Revenue Service
    The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

    , IRS Publication 583: Starting a Business and Keeping Records; and Internal Revenue Manual (03-01-2003)
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