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Single Entry Accounting Bookkeeping System
Definitions, Meaning Explained, Examples

 

A few businesses choose single entry accounting instead of the more common double entry system. With the single entry approach, each financial event brings just one transaction in the system. This approach is similar to the way that individuals use a check register.

The single entry approach is much simpler to use than double entry methods. It does not require training in accounting.

What is Single Entry Accounting?

Single entry accounting is a simple 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 Double Entry

On the positive side, single entry accounting is simpler and much easier 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.

Explaining Single Entry Accounting in Context

Sections below illustrate single entry transactions and further explain:

  • Advantages and disadvantages of both single entry and double entry systems.
  • Reasons that most firms choose double entry accounting
  • Business settings where single entry accounting can be sufficient for planning, record-keeping and financial reporting.

Note especially that discussions below appear in context with related terms and concepts, including the following:

Single Entry Accounting
Double Entry Accounting
Revenues
Expenses
Cash Basis Accounting
Accrual Accounting
Error Checking
Debit
Credit

 

Contents

Related Topics


 

Single Entry Systems: Examples

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 simply 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 very small business.

Example: Three Column Single Entry Record

Date Transaction Amount
1 June XX Starting balance for week $4,520.00
1 June XX Electricity bill for month ($149.80)
2 June XX Postage stamps purchase ($43.00)
2 June XX Inventory purchase ($624.15)
3June XX Daily product sales $1,040.25
4 June XX Sales tax paid ($83.22)
4 June XX Daily service revenues $592.25
5 June XX Bank acct interest received $180.83
8 June XX Customer refund paid ($42.95)
8 June XX Ending balance for week $5,390.21
Exhibit1. The simplest form of single entry bookkeeping for a few days transactions for a small business. Incoming funds are positive numbers and outgoing funds are negative (in parentheses).

Example: Five Column Single Entry Record

Date Transaction Revenues Expenses
Balance
1 June XX Starting balance for week $4,520.00
1 June XX Electricity bill for month ($149.80) $4,370.20
2 June XX Postage stamps purch. ($43.00) $4,327.20
2 June XX Inventory purchase ($624.15) $3,703.5
3 June XX Daily product sales $1,040.25 $4,743.30
4 June XX Sales tax paid ($83.22) $4,660.08
4 June XX Daily service revenues $592.25 $5,252.33
5 June XX Bank interest received $180.83 $5,433.16
8 June XX Customer refund paid ($42.95) $5,390.21
8 June XX Ending balance for week $5,390.21
Exhibit 2. Single entry bookkeeping with a running balance and separate columns for incoming revenues and outgoing expenses. Incoming funds are positive numbers, and outgoing funds are negative.

The user can, of course, add more columns to show different categories of revenues or expenses. The record simply must have enough revenue and expense categories to meet tax reporting needs.

Where and When 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.
  • Has few financial transactions per day.
  • Does not sell on its own 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.
  • Has very few employees.
  • Owns few expensive business-supporting physical assets. For example, it may own 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.
  • 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. 

Firms That May Use Single Entry Accounting

Under such conditions, a single entry system may meet the firm's planning and reporting needs. As a result, the single entry system may be adequate for:  

  • Supporting income tax reporting for the company. The primary data for this are outgoing expenses and incoming revenues.
  • Proving that the company collects and pays government sales taxes for goods or services sales.
  • Proving that the company pays its own income taxes. 
  • Forecasting future budgetary needs and sales revenues.
  • Proving that the company complies with minimum wage and employee tax withholding requirements.
  • Providing real-time visibility and control of incoming and outgoing funds. The firm must be able to avoid over spending budgets or overdrawing bank accounts.

What Are Single Entry System Advantages and Disadvantages?

The positive and negative aspects of single entry accounting are easiest to see by comparison with the alternative approach, double entry accounting.

Single Entry System Advantages

Single entry accounting has the great advantage of simplicity over double entry accounting. 

  • People with little or no background in finance or accounting readily understand single entry records and reports.
  • Small companies can use single entry systems without hiring a professional accountant or bookkeeper. 
  • The single entry approach does not require complex accounting software. The examples above show, for instance, that firms can create and maintain a single entry system easily in a written notebook or simple spreadsheet.

Single Entry System Disadvantages

Single entry accounting provides insufficient records and insufficient control for public companies and other organizations that must publish audited financial statements. Nor can it—by itself—give owners and managers crucial information for evaluating the company's financial position. 

Some of the important differences between the two approaches illustrate disadvantages of the single entry approach:

Double Entry System: Built in Error Checking

A double entry system provides several forms of error checking that are absent in a single entry system. In the double entry system, every financial transaction results in both a debit (DR) in one account and an equal, offsetting  credit  (CR)  in another account. For each reporting period, total debits must equal total credits. That is:

     Total DR = Total CR

Moreover, a double entry system works so that the Balance sheet equation always holds:

     Assets = Liabilities + Equities

These equations together are known as the accounting equation. Any departure from these equalities in a double entry system is a signal that account histories include an error.

Single Entry System: Error Checking Is Not Built In

This kind of error checking is missing from the single entry system.

If the single-entry bookkeeper mistakenly enters, say, a revenue inflow as $10,000 when the correct value is $1,000, the error may go unnoticed until the firm receives a bank statement with an unexpected low account balance.

In a double-entry system, however, the $1,000 cash deposit entry (a debit to an asset account, cash on hand) will be accompanied by another entry recognizing the source, for example, a credit to a liability account (e.g., bank loan) or a credit to another asset account (accounts receivable). And, if the firm omits the second entry, the sums of credits and debits in the system would differ, immediately revealing the error.  

Double Entry System: Focus on Revenues, Expenses, Assets, Liabilities, and Equities.

A double entry system keeps the firm's entire chart of accounts in view. The chart of accounts for a double entry system has in fact five kinds of accounts in two categories:

  • Firstly, Income statement accounts: (1) Revenue accounts, and (2) expense accounts.
  • Secondly, Balance sheet accounts: (3) Asset accounts, (4) Liability accounts, and (5) Equity accounts.

All transactions in a double entry system result in entries in at least two different accounts. When the company receives cash through a bank loan, the double entry system records:

  • Firstly, a debit for an asset account, e.g., Cash on hand. For an asset account, a debit is an increase.
  • Secondly, a credit to a liability account, e.g., bank loans. A credit to a liability account increases account balance.

Single Entry System: Focus on Revenues and Expenses Only

A single entry system tracks Revenue and Expense accounts, but does not track Asset accounts, Liabilities accounts, or Equities accounts

With a single-entry system, however, the company may receive cash from a bank loan and record that as incoming cash. In this case, however, there is no easy way to record the corresponding increase in liability (bank loan debt).

Singly Entry System Does Not Support Accrual Accounting

Single entry systems, moreover, work hand-in-glove with cash basis accounting, where firms record inflows and outflows only when cash actually flows. Also, single entry systems cannot easily support the alternative, accrual accounting. When the delivery of goods and services and customer payments come at different times, for instance, accrual accounting provides mechanisms for implementing the matching concept. Consequently, the firm recognizes revenues and the expenses that brought them in the same accounting period.

If the vendor delivery and the customer payment fall in different time periods, however, the single entry system has no way of matching the two events. The single entry system, therefore, can present a misleading picture of earnings for either period.

In Conclusion: Single Entry Accounting is Inadequate For Public Companies

Because of such disadvantages, it is extremely difficult to build a single entry system that conforms to GAAP requirements in most countries (Generally accepted accounting principles).This lack may not concern sole proprietorships, partnerships, or very small privately held corporations. This is because accounting system for such firms must support only the tax and employment reporting requirements.

It is nearly impossible to build a single entry system, however, that by itself supports the reporting needs of public corporations (companies that sell shares of stock to the public). A single entry system, in fact, is inadequate, for any firm that must report statements of income, financial position (Balance sheet), retained earnings, or cash flow (changes in financial position).

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