Disadvantages of single entry system

1. Since the two-fold aspect of every transaction is not recorded in the books of accounts,
therefore, the arithmetical accuracy of the books of accounts cannot be ascertained by
means of a trial balance.

2. It is not possible to obtain accurate information regarding the results of business

operations, as under single entry system, nominal accounts relating to losses, expenses,
gains and incomes have not been maintained. In the absence. of these accounts, necessary
classified information required for preparing pr9fit and loss account is not available.
Hence profit and loss account cannot be prepared.

3. Information relating to assets and liabilities cannot be reliable because respective

accounts have not been maintained. Thus, even balance sheet cannot be prepared.
Consequently, true financial position of the business cannot be ascertained.

4. In the absence of various checks, fraud is more easily committed and it is very difficult
to detect.

Ascertaining profit under the single entry system

Under the single entry system of book-keeping, it is not possible to prepare a regular
trading and profit & loss account, because no record is kept of the nominal accounts,
therefore, the exact profit or loss for a particular period cannot be ascertained. The net
profit for a particular period can be ascertained in a rough manner by comparing the
financial position of the business at the commencement of the period with the financial
position at the end of the period. This requires the preparation of two statements of
affairs, one in the beginning and the other at the end.

Opening and closing balances of capitals can be the ascertained by preparing statement of
affairs, and comparison of the capitals at the two dates will reveal either profit or loss.

Preparation of a statement of affairs

A statement of affairs (for this purpose is a document in the form of a balance sheet,
showing on right hand side the amounts (estimated) of the various assets and on the left
hand side the estimated amounts of liabilities. The difference of the two sides represents
capital of the owner i.e. net worth. .

First a statement of affairs as at the beginning of the period should be prepared. For this,
particulars of assets and liabilities as on the date should be collected with the assistance
of the owner. The value of the fixed assets (plant, building, machinery, fixtures etc.)
should be arrived at as follows-Proprietor will probably remember their original cost and
the date of acquisitions from which (cost) appropriate amount of depreciation should be
deducted, this will give 'written down value' of such assets which should be included in
the statement of affairs. Stock taking should be done physically; lists be prepared and
valuation to be done adopting cost or market price whichever is lower. Bank balance can
be ascertained from the pass book or statement of account supplied by the bank. Cash can
be physically counted. Debtors and creditors can be ascertained from the personal ledger.

As already stated, excess of assets over liabilities represents capital. After preparing
statement of affairs, both at the beginning of the period and at the close of the period the
profit or loss (for the period) is ascertained by comparing the capital at the end of the
period with that at the beginning. Adjust the capital at the end by adding drawings there
to and deducting there from fresh capital introduced.

The author is an engineering graduate, B.E.(Hons), and is managing his own software
development firm, HiTech Computer Services, that mainly deals in accounting, billing
and inventory control software for traders, industries, business houses, hotels, hospitals,
medical stores, newspapers, magazines, petrol pumps, automobile dealers, commodity
brokers and other business segments, website and web application deveopment for
business. The software are available both for intranet and internet. These software are
available for download from the website: