Accounting records that are not prepared by the principles of double entry are known as incomplete records. Here are the single entry system class 11 notes.
According to Kohler, “A system of bookkeeping in which, as a rule, only records of cash and personal accounts are maintained; it is always incomplete double entry system, varying with circumstances.”
Topics Discussed
Features of Single Entry System
Maintenance of personal accounts only
Usually, under this system, only personal accounts are prepared in the books, and the real and nominal accounts are ignored.
Maintenance of cash book
A cash book is maintained under this system, which usually mixes up business as well as private transactions of the proprietor.
Dependence on original vouchers
To collect the required information one has to depend on original vouchers. For example, the figure purchased at the end of the particular period is ascertained by totaling the original invoices received from the suppliers.
Similarly, the figure of sale is ascertained by making a total of the copies of invoices that have been issued to the customer during this year.
Lack of uniformity
The books maintained under this system may differ from firm to firm.
Suitability
Books according to this system can be maintained only by a sole trader or partnership firm. Limited companies cannot keep their books on this system because of legal provisions.
Preparation of final accounts
Since a record of all the nominal and real accounts is not maintained under this system, the final accounts cannot be prepared easily.
Uses or Reasons for Keeping Incomplete Records
- Simple method: It is an easy and simple method of recording business transactions.
- Less expensive: Only the cash book and some of the ledger accounts are maintained under this system.
- Suitable for small concerns: This method is more suitable for small business concerns which have mostly cash transactions and very few assets and liabilities.
- Easy to calculate profit or loss: It is easier to calculate profit or loss under the method. For this purpose, only the closing capital has to be compared with the opening capital along with some adjustments.
Limitations of Single Entry System
Preparation of trial balance not possible
The method does not record both aspects of a transaction. As such, a trial balance cannot be prepared to check the arithmetical accuracy of the books of accounts.
Incomplete and unscientific system
The system is incomplete and unscientific because both the aspects, of debit and credit transactions are not recorded.
True profit or loss cannot be ascertained
As nominal accounts are not maintained, a trading and profit and loss account cannot be prepared and hence the profit earned or loss suffered during a particular period cannot be ascertained with reasonable accuracy.
Difficulty in preparing balance sheet
Since real accounts are not maintained, the balance sheet cannot be prepared to depict the true financial position of the business.
No control over assets
Since real accounts are not maintained, it is not possible to keep full control of the assets.
No recognition in the assessment of income tax and sales tax
The system fails to reveal the true profit and sales of a business. As such, the accounts maintained under the system are not accepted by tax authorities.
Unsuitable for planning and control
The system fails to provide the adequate and reliable figures required for planning and sound decision-making.
Difficulty in comparative study
Due to incomplete information, the profitability and financial position of the current year cannot be compared with that of the previous year and as such, it becomes quite difficult to know the reasons for improving profitability and financial position.
Proper valuation of assets not possible at the time of sale of business
It becomes very difficult to fix the correct price of assets, especially goodwill, at the time of the sale of the business.
Difference between Double Entry System and Single Entry System
| Basis of Difference | Double Entry System | Single Entry System |
| Recording of both aspects | Both aspects of every transaction are recorded in it. | Both aspects of very few transactions are recorded. For some other transactions, one aspect and yet for others, no aspect at all is recorded. |
| Types of accounts | All accounts – personal, real, and nominal accounts are maintained under it. | Only personal accounts and a cash book are maintained under it. |
| Trial balance | The arithmetic accuracy of the books of accounts can be checked by preparing a trial balance. | Arithmetic accuracy cannot be checked in it because a trial balance cannot be prepared. |
| Net Profit or Loss | True profit or loss can be ascertained by preparing a trial balance. | True profit or loss can not be ascertained in it because a trading and profit and loss account cannot be prepared. |
| Financial position | True financial position is ascertained by preparing a balance sheet. | True financial position cannot be ascertained as the balance sheet cannot be prepared. Only a statement of affairs is prepared based on incomplete accounts and estimates. |
| Flexibility | Books maintained under this system are reliable because they are based on scientific principles. | Books maintained under this system are less reliable because they are based on estimates. |
Basic Accounting Terms Class 11 Notes
Ascertainment of Profit and Loss from Incomplete Records
Statement of Affairs Method
According to this method, the profits are ascertained by comparing the capital at the end and capital at the beginning of the accounting period.
If the capital at the end of the accounting period is more than that at the beginning (with the necessary adjustments), the difference is related to the profit.
If, on the other hand, the capital at the end is less than that of the beginning, the difference is treated as a loss.
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| Bank Overdraft | x | Cash in hand | x |
| Bills Payable | x | Cash at bank | x |
| Sundry Creditors | x | Bills Receivable | x |
| Outstanding Expenses | x | Sundry Debtors | x |
| Advance Income | x | Stock | x |
| Capital (Bal. Fig.) | x | Prepaid Expenses | x |
| Accrued Income | x | ||
| Furniture | x | ||
| Plant and machinery | x | ||
| Total | xx | xx |
If the total of liabilities is deducted from the total of assets side of the statement of affairs, the balance will be taken as capital.
It is based on the accounting equations: Capital = Assets- Liabilities
Difference between Balance Sheet and Statement of Affairs
| Basis of Difference | Balance Sheet | Statement of Affairs |
| Double Entry | It is prepared with the list of ledger balances drawn from the books of accounts kept based on double entries. | It is not prepared with the list of ledger balances but with such information as is available from the accounting records kept based on a single entry. |
| Arithmetical Accuracy | The tallying of the balance sheet proves the arithmetical accuracy of accounting books because it is prepared based on the trial balance. | A statement of affairs does not prove the arithmetical accuracy of accounting books because it is not prepared based on the trial balance. |
| Value of Assets & Liabilities | The value of assets and liabilities shown in the balance sheet are the actual values based on ledger accounts. | The value of assets and liabilities shown in the statement of affairs are merely estimates based on physical inspection. |
| Object | It is prepared for ascertainment of the financial position of a business. | It is prepared for ascertaining the capital of the business. |
| Omission of an Asset or a Liability | If an asset or a liability is omitted while preparing a balance sheet, it will be easily detected because the balance sheet will not tally. | If an asset or liability is omitted while preparing the statement of affairs, it cannot be easily detected. |
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