Defects of Single Entry System

The single entry system suffers from the following defects:

(1)    As two-fold aspect of the transactions is not recorded on the basis of double entry system, it is not possible to compile a trial balance from available information. Arithmetical accuracy of the books therefore is always in doubt.

(2)    The complete record of the nominal accounts is not maintained. It is, therefore, not possible to calculate accurately the results of business operations i.e., profit or loss.

(3)    Since real accounts are not kept separately, it is not possible to prepare the balance sheet. It is, therefore difficult to obtain an idea about true financial position of the business enterprise.

(4)    The double entry system is endowed with the automatic checks which are missing in the single entry system. Hence committing of frauds is easier and their detection is difficult.

(5)    Profit and loss in single entry system is calculated in most of the cases by comparing the capital at the end with the capital in the beginning. It does not provide useful information in respect of causes of sources of profit or loss.

(6)    Errors are quite common and there is no procedure for detecting them.

(7)    It is not possible to attempt intra-firm or inter-firm comparison since necessary statistical information regarding depreciation, sale of purchase of assets etc., is not available.

(8)    In the absence of complete and classified information, the proprietor will definitely be in a fix in the following situations:
 
(i)    while selling his business since no method of determining its net worth is available;

(ii)    while valuing the goodwill;

(iii)    while filing claim with the insurance company for the loss of stock by fire etc.;

(iv)    while facing the income tax authorities for the reliability of his computed income;

(v)    while arranging loans from the financial institutions as no satisfactory data are available regarding the liquidity or profitability of the enterprise.

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