Single entry ac­count­ing – an in­tro­duc­tion

For many busi­ness­es, ac­count­ing can be a real pain in the neck, and ideally something which could be avoided. However that does not reduce the im­por­tance of ac­count­ing, and it is something that every business needs to do; big or small. Given that book­keep­ing is such a vast and expansive subject, there are of course bound to be several different types. One of these is single entry ac­count­ing. This article will aim to tell you what this type of book­keep­ing is, who should be doing it, as well as what the dif­fer­ence is between it and its coun­ter­part, double entry book­keep­ing.

According to the IRS (Internal Revenue Service), the single entry system records the flow of income and expenses through 1) a daily summary of cash receipts and 2) monthly summaries of cash receipts and dis­burse­ments. It can be made up of trans­ac­tions taken from a notebook, daybook, or journal. It can also include an entire set of journals and a ledger con­tain­ing accounts for all important entries. Such entries can be sourced from a business checkbook, a de­pre­ci­a­tion schedule, employee wages record, and ledgers showing debtor and creditor balances. Primarily however single entry book­keep­ing only really involves trans­ac­tions that a company has with external parties. Any trans­ac­tions or financial dealings that might take place in­ter­nal­ly within a business – such trans­ac­tions can be of great im­por­tance. In general, it is a firm’s income statement around which its single entry book­keep­ing system is based.

Single entry ac­count­ing takes place primarily in the form of a cash book, i.e. a record of cash-based income and ex­pen­di­ture which has space above and below to show both the balance at the start and at the end. As this is quite a sim­plis­tic way of doing accounts, it means that single entry book­keep­ing is mainly done manually because all com­put­er­ized systems use the double entry system. This is also the case with the majority of ac­count­ing software available to en­tre­pre­neurs and busi­ness­es.

The idea behind single entry ac­count­ing is to make cal­cu­lat­ing profit easier for small busi­ness­es. The lower the turnover, the less need there is for the com­plex­i­ties that come with double entry book­keep­ing. Therefore it is the sim­plic­i­ty that makes single entry book­keep­ing so appealing.

The simple nature of single entry ac­count­ing is then reflected in the type of busi­ness­es that utilize it. For en­tre­pre­neurs running a solo operation, chances are that the single entry system will be suf­fi­cient for them and their ac­count­ing needs. This system is also much easier to learn and thus will not require the ac­qui­si­tion of expert as­sis­tance. It becomes es­pe­cial­ly relevant then for newly founded companies, who are unlikely to have enough resources to launch a com­pre­hen­sive book­keep­ing system. As the firm evolves then, it is extremely likely that they will need to adopt the double entry system. It is only really the case that a company can continue to use single entry ac­count­ing if the scale of the business remains small and its trans­ac­tions remain rel­a­tive­ly basic.

While there are several positives that come with using the single entry system, it also has its fair share of downsides too. Due to the fact that it does not contain all in­for­ma­tion relating to the business, man­age­ment will not have full access to data that is necessary for running a company. This leads to an ad­min­is­tra­tive process that is not as accurate as it could be and therefore reduces the control that one might have over the day to day running of the business.

With single entry book­keep­ing it is the case that assets and li­a­bil­i­ties are usually recorded but only with a single entry for each. This means that theft and other losses are less likely to be detected. In fact it is the case that one person, i.e. the one in charge of the accounts, could single handedly cook the books and mis­ap­pro­pri­ate the company’s financial resources. 

Thus the above cir­cum­stances mean that it is im­pos­si­ble to compile a com­pre­hen­sive overview of a company’s financial condition. This affects not just current managers and investors, but also potential future investors as well, as a financial statement prepared via single entry ac­count­ing processes are not a viable indicator for overall business per­for­mance.

Whereas the double entry ac­count­ing system requires that each entry matches, this is not the case with the case with the single entry system, making it much more prone to ac­count­ing errors. As might be expected then this also means that auditing is not possible with single entry book­keep­ing.

Only the income and ex­pen­di­ture that actually took place in the period in question are con­sid­ered, i.e. the so-called cash method of ac­count­ing. Like with double entry ac­count­ing, income/ex­pen­di­ture via a third party, inventory changes, accruals, etc. are taken into con­sid­er­a­tion with single entry book­keep­ing.