Question
Define Single Entry System. What are the defects of this system?
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Answer
Accounting records that are not maintained according to Double Entry System are known as Accounts from Incomplete Records or Single Entry System of Accounting.
Kohler defines Single Entry System as, “A system of book keeping in which as a rule only records of cash and of personal accounts are maintained, it is always incomplete double entry varying with the circumstances."
Single Entry System is an incomplete and insufficient system of information, hence it has the following disadvantages:
Kohler defines Single Entry System as, “A system of book keeping in which as a rule only records of cash and of personal accounts are maintained, it is always incomplete double entry varying with the circumstances."
Single Entry System is an incomplete and insufficient system of information, hence it has the following disadvantages:
- Arithmetical Accuracy cannot be Proved: Trial Balance cannot be prepared hence, arithmetical accuracy of books cannot be proved or tested. Chances of error, mischief or fraud remaining undetected are high.
- No Control on Assets: Since assets accounts are not maintained, it is difficult to keep full control, in order to avoid misappropriations of assets.
- Correct Profit or Loss cannot be Determined: Trading and Profit and Loss Account cannot be prepared hence, correct profit earned or loss incurred during the accounting period cannot be determined.
- Financial Position of the Business cannot be Assessed: In the absence of assets accounts, it is difficult to determine correct financial position of the business on any particular day by preparing a Balance Sheet.
- No Internal Check: Since internal check is not possible, the method leaves room for errors and frauds, besides their detection becomes difficult.
- Difficult to Ascertain the Value of Business: The records being inadequate, it is difficult to value the business, especially goodwill.
- Incomplete and Unscientific System: This system is incomplete and unscientific as both the aspects of a transaction are not recorded and no set rules are followed for recording them.
- Comparative Study is Difficult: A major defect of this system is that the financial position of the current year cannot be compared with that of the previous year due to incomplete information of transactions of business.
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₹
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Interest on investment collected by bank.
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