Single Entry System of Accounting.

This system of accounting is followed by those who are not trained enough for double entry system although they are engaging in business activities and concern to find out their profits.

First of all, I want to add that the word “single entry” should not be understood as "one entry accounting". It is a combination of double entry, single entry and even no entry.

The main idea behind this concept is to not record expense and income transactions. We only have to compare opening capital with closing capital to determine our profit.

Suppose you started business with cash 100000 rupees in the beginning of the year on 1^st Jan 2014.

And during the year you made some transactions which brought the following balances on 31^st Dec 2014:

Machine—40000 rupees; Stock—20000; debtors – 30000; Bank balance—60000; cash in hand—20000.

Creditors—50000.  Thus the total closing capital balances are – 120000.

Thus, the profit for the year is 120000(-) 100000=20000.

What I have done is just deduct opening capital from closing capital to find out the profit.

This system explains that if you are incurring any expenses, your cash gets reduced so no need to maintain the recording of expenses and income. On the other hand, if you are incurring any expenses on credit your creditor appears on the liability side of the balance sheet. So you have just seen that in every situation your balance sheet value gets affected by the transactions, that is why, the system appeals us to use only balance sheet value in determining profits.

To conclude, I must say that the chances of misappropriation, miscalculation, and fraud increases too much as there is not trial balance to check the error.

That is how I explained single entry system of accounting. If you have any doubt regarding this topic, please write me in the comment box below.