Difference between Double Entry and Single Entry
In a double entry system, fixed assets as well as liabilities are recorded in a balance sheet. On the other hand, single entry system does not record assets and liabilities.
Before we move on to understanding the difference between double entry and single entry, we need to learn about these two terms in detail. Let us get started with comprehending these terms individually.
Table of Contents
- Difference between Double Entry and Single Entry
- What is a single entry system?
- What is double entry system?
Difference between Double Entry and Single Entry
| Parameters | Double entry | Single Entry |
| Suitable For | Basic accounting knowledge | Advanced accounting knowledge |
| Complexity | Low | High |
| Error detection | Lower | Easier |
| Used by | Low-cap businesses | Mid-cap and high-cap businesses |
| Ledgers | Cash and personal account | Personal, real and nominal accounts |
| Recording | Partial | Complete |
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What is a single entry?
A single entry is an accounting system where every transaction is recorded with a single entry to accounting records. It is the oldest method to maintain financial records of every entry. The aim of a single entry is to focus on the results of the business that is being reported on the income statement. Single entry system tracks cash receipts, profit or loss statements and cash disbursement. Cash books are used for record-keeping in a single-entry system.
Limitations of Single Entry System
Due to the following limitations, Generally Accepted Accounting Principles (GAAP) does not encourage the use of this record-keeping:
- It cannot record complex transactions due to which it is not suitable for mid-cap and high-cap businesses.
- Due to the one-sided nature of recording entries, reconciliation of accounts is not possible. This leads to an increase in the possibility of fraud and errors.
- Accounting records maintained under a single entry system are not suitable for taxation purposes.
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Excluded elements: What is not recorded?
The following elements are not recorded in a single-entry system:
- Audit trail
- Asset and Liabilities
- Balance sheet
- Complex transactions
- Credit and debit for every transaction
Why is Single Entry System Still Used?
TThe reason behind the popularity of this bookkeeping system is its simplicity. Being simplistic in nature, small-cap businesses prefer this system of entry. It only requires minimum entries and a basic understanding of accounting standards. Due to this ease, even people without advanced knowledge of accounting can use it.
Single entry is mostly used by small businesses such as partnerships and sole proprietorships. It does not require advanced knowledge and expertise in recording transactions. There is no need to prepare journals, ledgers and trial balance in the case of single entry.
What is a double entry system?
Double entry bookkeeping system ensures that transactions are recorded as debits and credits. According to double entry accounting, each financial transaction leaves an equal and opposite effect in a minimum of two accounts. A debit in one account offsets credit in other accounts so that sum of all debit must be equal to sum of every credit. The system is based on satisfying the equation i.e. asset = liabilities + equity.
Excluded Elements: What is not included?
The following elements are not included in a double entry system:
- Non-Monetary Transactions
- Current market value
- Uncalled capital
- Key performance indicators (KPIs)
Advantages of Double Entry System
The following points highlight the importance of double entry accounting system:
With the help of a double-entry system, accounting processes have become streamlined. This is advantageous in the following manner:
- Helps in maintaining accurate financial records as the system is aligned with GAAP. For every transaction, there is a complete procedure of record keeping as both aspects of any transaction are recorded.
- More elaborate financial statements are prepared and hence errors can be easily detected.
- Due to double entry, accounts can be reconciled due to which chances of embezzlement and fraud are minimised.
Limitations of Double Entry System
The following points indicate the limitations of double entry system of accounting:
- Due to the complexity of this bookkeeping system, one must have the advanced level knowledge of the principles of accounting.
- Maintenance of books of accounting is more time taken due to which experienced professionals are required.
- Documentation must be performed twice due to which larger books must be maintained. To avoid this, computer systems are required.
Conclusion
Both the single entry system and double entry system are fundamental to bookkeeping. The entry system is chosen based on the size of the business. While the single entry system of accounting is not aligned with GAAP, the double entry system follows it completely. Due to this reason, bigger businesses must follow the double system of accounting.
Related Reads:
- Difference between journal and ledger
- Difference between bookkeeping and accounting
- Difference between finance and accounting
- Difference between debit and credit
FAQs
Mention an example of single entry.
An owner of a small store sells a product. In this case, the record would be a single entry since only income will be recorded.
Mention an example of double entry.
When a business purchases an equipment, it is a double entry. The equipment account will be debited since a new asset is added. On the other hand, cash account will be credited as it is spent on buying a new equipment.
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