Professor Vipin 2014
Conversion of Single Entry to Double Entry
Single Entry
Many times small business organizations do not maintain a comprehensive accounting system which is
based on the double entry principle. The businessman is usually happy with the minimum information
like the balances of cash and bank accounts and whether he has made a profit or loss. These people
maintain rough or sketchy records that serve a limited purpose. Because, the principle of double entry is
not followed, it is often referred to as a ‘single entry system’. Such system maintains only personal
accounts and cash book. Expenses and incomes are reflected in the cash book, whereas personal
accounts reflect the debtors’ and creditors’ position. This system usually follows the principle of ‘cash
basis accounting’ and hence no accrual or non-cash entries are passed. For example, entries like
depreciation, provision for expenses, accrued incomes have no place under such system.
Features of Single Entry System
1. Maintenance of books by a sole trader or partnership firm: The books which are maintained
according to this system can be kept only by a sole trader or by a partnership fi rm.
2. Maintenance of cash book: In this system it is very often to keep one cash book which mixes up
business as well as private transactions.
3. Only personal accounts are kept: In this system, it is very common to keep only personal
accounts and to avoid real and nominal accounts. Therefore, sometimes, this is precisely defined
as a system where only personal accounts are kept.
4. Collection of information from original documents: For information one has to depend on
original vouchers, example, in the case of credit sales, the proprietor may keep the invoice
without recording it anywhere and at the end of the year the total of the invoices gives an idea
of total credit sales of the business.
5. Lack of uniformity: It lacks uniformity as it is a mere adjustment of double entry system
according to the convenience of the person.
6. Difficulty in preparation of final accounts: It is much difficult to prepare trading, profit and loss
account and balance sheet due to the absence of nominal and real accounts in the ledger.
Difference between single entry system and double entry system
(i)
In double entry system both the aspects (debit and credit) of all the transactions are
recorded. But in single entry system, there is no record of some transactions, some
transactions are recorded only in one of their aspects whereas some other transactions are
recorded in both of their aspects.
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Professor Vipin 2014
(ii)
(iii)
(iv)
(v)
Under double entry system, various subsidiary books such as sales book, purchases book etc
are maintained. Under single entry system, no such subsidiary books except cash book
which is also considered as a part of ledger is maintained.
In the case of double entry system, there is a ledger which contains personal, real and
nominal accounts. But in single entry system, the ledger contains some personal accounts
only.
Under double entry system, preparation of trial balance is possible whereas it is not possible
to prepare a trial balance in single entry system. Hence accuracy of work is uncertain.
Under double entry system, Trading A/c, Profit & Loss A/c and the Balance Sheet are
prepared in a scientific manner. But under single entry system, it is not possible – only a
rough estimate of profit or loss is made and a Statement of Affairs is prepared which
resembles a balance sheet in appearance but which does not present an accurate picture of
the financial position of the business.
Benefits of single entry system
1.
2.
3.
4.
It’s quick and easy to maintain.
One doesn’t require employing a qualified accountant.
This is extremely useful for business run by individuals where the volume of activity is not large,
It is economical as it does not need a comprehensive record keeping.
Weaknesses of single entry system
1. As principle of double entry is not followed, the trial balance cannot be prepared. As such,
arithmetical accuracy cannot be guaranteed.
2. Profit or loss can be found out only by estimates as nominal accounts are not maintained.
3. It is not possible to make a balance sheet in absence of real accounts.
4. It is very difficult to detect frauds or errors.
5. Valuation of assets and liabilities is not proper.
6. The external agencies like banks cannot use financial information. A bank cannot decide
whether to lend money or not.
7. It is quite likely that the business and personal transactions of the proprietor get mixed
Conversion of Single Entry to Double Entry
It may be possible to prepare the P & L A/c and balance sheet for such organizations by converting the
records into double entry method. In this method, various ledger accounts are prepared e.g. sales,
purchases, debtors, creditors, Trading A/c, cash book. As full information is not available the balancing
figure in each of these accounts needs to be correctly interpreted. For example, if we know opening &
closing balances in Debtors’ A/c and the cash received from debtors; then the balancing figure will
obviously indicate sales figures. Also, if we know opening and closing balances of creditors & credit
purchases figures; then the balancing figure will certainly mean cash paid to creditors.
Once these figures are calculated, it’s easy to prepare the financial statements in regular formats.
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Professor Vipin 2014
Example 1
Find out the collection from debtors from the following details
Opening debtors
Opening Bank balance
Closing debtors
Closing bank balance
Payments to creditors
Credit sales
Bills receivable enchased
Bills payable paid
Drawings
Expenses paid
Discount allowed
34000
8000
46000
14000
160000
237000
18000
12000
24000
36000
5000
Solution 1
Debtors Account
Particulars
To Balance b/d
To Sales (credit)
Amount
34000
237000
271000
Particulars
By Bank (collection)
A/c
By Balance c/d
Amount
225000
46000
271000
Cash / Bank Account
Particulars
To Balance b/d
To B/R encashed
To Debtors (collection)
Amount
8000
18000
225000
251000
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Particulars
By Creditors A/c
By Discount allowed
A/c
By B/P paid A/c
By Drawings A/c
By Expenses A/c
By Balance c/d
Amount
160000
5000
12000
24000
36000
14000
251000
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Professor Vipin 2014
Example 2
Mrs. Laxmi, a retail trader needs fi nal accounts for the year ended 31-03-2012 for the purpose of taking
a bank loan. However, she informs you that principle of double entry had not been followed. With
following inputs, prepare a Profi t & Loss A/c for the year ended 31-03-2012 and Balance sheet as on
31-03-2012. Details of receipts and payments:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
Cash deposited in bank Rs.3500
Dividend on personal A/c deposited into bank Rs.250
Tuition fees of Laxmi’s daughter paid by cheque Rs.4500
Rent for the year by cheque Rs. 9000
Cash received from debtors Rs. 52500
Paid to creditors Rs. 40025
Salaries & wages paid in cash Rs. 9000
Transportation in cash Rs. 2750
Office electricity in cash Rs. 6600
Electricity (house) in cash Rs. 7200
General expenses in cash Rs. 890.
Opening and closing balances are as follows
Particulars
Stock
Bank
Cash
Debtors
Creditors
Investments
Mar-11
42500
55500
10850
16800
15600
15000
Mar-12
22500
20500
10500
14800
22800
15000
She also informs you that she draws Rs. 6000 from bank on monthly basis and some debtors deposit
cheques directly in bank.
Solution 2
Stock A/c
Particulars
To bal b/d
To Purchase (credit)
To cash (purchase)
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Amount
42500
47225
22910
112635
Particulars
By Cost of sales (Bal
fig)
By Bal c/d
Amount
90135
22500
112635
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Professor Vipin 2014
Bank A/c
Particulars
To Bal b/d
To Cash a/c
To Capital (dividend)
To debtors (Bal fig)
Amount
55500
3500
250
86775
Particulars
By Drawings (tuition)
By Rent
By Creditors
By drawings (6000pm)
By Bal c/d
146025
Amount
4500
9000
40025
72000
20500
146025
Cash A/c
Particulars
To Bal b/d
To Debtors
Amount
10850
52500
Particulars
By Bank
By Salaries & wages
By transport
By Electricity
By Drawings
(electricity)
By Gen expenses
By Purchases (Bal fig)
By Bal c/d
63350
Amount
3500
9000
2750
6600
7200
890
22910
10500
63350
Debtors A/c
Particulars
To Bal b/d
To Sales (credit) (Bal
fig)
Amount
16800
Particulars
By Cash
Amount
52500
137275
By Bank
By bal c/d
86775
14800
154075
154075
Creditors A/c
Particulars
To Bank
To Balance c/d
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Amount
40025
22800
62825
Particulars
By Balance b/d
By Purchases (credit) (bal. fi
g.)
Amount
15600
47225
62825
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Professor Vipin 2014
Mrs. Laxmi’s Capital Account
Particulars
To Drawings (tuition
fees
To Drawings
(electricity
To Drawings (bank)
To Balance c/d
Amount
4500
7200
72000
41600
Particulars
By Balance b/d (bal. fi
g.)
By Bank (dividend )
Amount
125050
250
Trading Account
Particulars
To Opening stock A/c
To Purchases A/c
To Gross profi t c/d
Amount
42500
70135
47140
159775
Particulars
By Sales A/c
By Closing sock A/c
Amount
137275
22500
159775
P&L Account
Particulars
To Rent
To Salary & wages
To Transportation
To Electricity
To General Expenses
To Net Profit c/d
Amount
9000
9000
2750
6600
890
18900
47140
Particulars
By Gross Profit b/d
Amount
47140
47140
Balance Sheet as on March 31st 2012
Liabilities
Creditors
Capitial (Bal fig)
Net Profit
Amount
22800
41600
18900
83300
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Assets
Stock
Bank
Cash
Debtors
Investment
Amount
22500
20500
10500
14800
15000
83300
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