Accounts from incomplete Records

INTRODUCTION

We have, so far, discussed Double Entry System; according to which, both the aspects of a transaction are recorded. Another system of recording transactions in the books of account is Single Entry System, under which both the aspects of a transaction may not be recorded. Unlike Double Entry System, in Single Entry System, no set rules are followed—even the books of account to be maintained are not certain. Usually, under this system, the Cash Book and personal accounts of debtors and creditors are maintained; real and nominal accounts are not maintained at all. Since both the aspects of transactions are not recorded, the system is known as Accounts from Incomplete Records or Single Entry System of Accounting. Accounting records that are not maintained according to Double Entry System are known as Accounts from Incomplete Records or Single Entry System of Accounting. Sometimes, the term Single Entry System is mistakenly understood that under this system only one aspect of a transaction is recorded in the books. This is not true. The fact is that under this system, in certain transactions both the aspects are recorded (for example, cash received from customers, cash paid to suppliers), for others only one aspect is recorded (for example, cash paid to acquire a fixed asset) and some transactions are even ignored (for example, depreciation on a fixed asset).

Features of Single Entry System:

(i) Suitability: This system is suitable for small-size business where the number of transactions is less.

(ii)  No Uniformity: This system may differ from firm to firm as it is a mere adjustment of Double Entry System according to requirements and convenience.

(iii)  Maintenance of Personal Accounts: Usually under this system, only personal accounts are maintained and real and nominal accounts are avoided. Therefore sometimes, it is defined as a system where only personal accounts are kept.

(iv) Maintenance of Cash Book: Generally, a Cash Book is maintained in this system which mixes up business as well as private transactions. 

(v) Dependence on Original Vouchers: Usually under this system, original vouchers are scrutinised for collection of information. For example, in case of credit sale, the owner may keep the invoice without recording it in accounting books and at the end of a particular period the total of the invoices gives credit sales of the business. 

(vi) Difficulty in Preparation of Final Accounts: In the absence of all nominal and real accounts in the ledger, final accounts cannot be prepared easily.

Advantages of Single Entry System 

(i)  Simple Method: Single Entry System is a simple method of recording business transactions.  

(ii) Less Expensive: It is less expensive when it is compared to Double Entry System of book keeping.

(iii)  Suitable for Small Businesses: It is mainly suited to small businesses with limited number of transactions and very few assets and liabilities. 

(iv)  No Need of Expert Knowledge: Under Single Entry System, accounting records can be easily maintained as their maintenance does not require expert knowledge of the principles of book keeping. 

(v) Easy to Ascertain Profit or Loss: Ascertainment of profit or loss is much easier. To ascertain the profit or loss, the proprietor has to compare the financial condition of business at the close of the accounting period with that in the beginning. 

Disadvantages of Single Entry System :-

Single Entry System has the following disadvantages: 

(i) 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.

(ii) No Control on Assets: Since assets accounts are not maintained, it is difficult to keep full control, in order to avoid misappropriations of assets.

(iii) 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.

(iv)  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. 

(v)  No Internal Check: Since internal check is not possible, the method leaves room for errors and a fraud, besides their detection becomes difficult.

(vi) Difficult to Ascertain the Value of Business: The records being inadequate, it is difficult to value the business, especially goodwill.

(vii)  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. 

(viii)  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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