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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(ii) 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.
(iii) 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.
(iv) 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.
(v) 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. It’s quick and easy to maintain.

2. One doesn’t require employing a qualified accountant.
3. This is extremely useful for business run by individuals where the volume of activity is not large,
4. 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 34000

Opening Bank balance 8000
Closing debtors 46000
Closing bank balance 14000
Payments to creditors 160000
Credit sales 237000
Bills receivable enchased 18000
Bills payable paid 12000
Drawings 24000
Expenses paid 36000
Discount allowed 5000

Solution 1

Debtors Account

Particulars Amount Particulars Amount

By Bank (collection)
To Balance b/d 34000 A/c 225000
To Sales (credit) 237000 By Balance c/d 46000
271000 271000

Cash / Bank Account

Particulars Amount Particulars Amount

To Balance b/d 8000 By Creditors A/c 160000
By Discount allowed
To B/R encashed 18000 A/c 5000
To Debtors (collection) 225000 By B/P paid A/c 12000
By Drawings A/c 24000
By Expenses A/c 36000
By Balance c/d 14000
251000 251000

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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. Cash deposited in bank Rs.3500

ii. Dividend on personal A/c deposited into bank Rs.250
iii. Tuition fees of Laxmi’s daughter paid by cheque Rs.4500
iv. Rent for the year by cheque Rs. 9000
v. Cash received from debtors Rs. 52500
vi. Paid to creditors Rs. 40025
vii. Salaries & wages paid in cash Rs. 9000
viii. Transportation in cash Rs. 2750
ix. Office electricity in cash Rs. 6600
x. Electricity (house) in cash Rs. 7200
xi. General expenses in cash Rs. 890.

Opening and closing balances are as follows

Particulars Mar-11 Mar-12

Stock 42500 22500
Bank 55500 20500
Cash 10850 10500
Debtors 16800 14800
Creditors 15600 22800
Investments 15000 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 Amount Particulars Amount

By Cost of sales (Bal
To bal b/d 42500 fig) 90135
To Purchase (credit) 47225 By Bal c/d 22500
To cash (purchase) 22910
112635 112635

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Bank A/c

Particulars Amount Particulars Amount

To Bal b/d 55500 By Drawings (tuition) 4500
To Cash a/c 3500 By Rent 9000
To Capital (dividend) 250 By Creditors 40025
To debtors (Bal fig) 86775 By drawings (6000pm) 72000
By Bal c/d 20500
146025 146025

Cash A/c

Particulars Amount Particulars Amount

To Bal b/d 10850 By Bank 3500
To Debtors 52500 By Salaries & wages 9000
By transport 2750
By Electricity 6600
By Drawings
(electricity) 7200
By Gen expenses 890
By Purchases (Bal fig) 22910
By Bal c/d 10500
63350 63350

Debtors A/c

Particulars Amount Particulars Amount

To Bal b/d 16800 By Cash 52500
To Sales (credit) (Bal
fig) 137275 By Bank 86775
By bal c/d 14800
154075 154075

Creditors A/c

Particulars Amount Particulars Amount

To Bank 40025 By Balance b/d 15600
By Purchases (credit) (bal. fi
To Balance c/d 22800 g.) 47225
62825 62825

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Mrs. Laxmi’s Capital Account

Particulars Amount Particulars Amount

To Drawings (tuition By Balance b/d (bal. fi
fees 4500 g.) 125050
To Drawings
(electricity 7200 By Bank (dividend ) 250
To Drawings (bank) 72000
To Balance c/d 41600

Trading Account

Particulars Amount Particulars Amount

To Opening stock A/c 42500 By Sales A/c 137275
To Purchases A/c 70135 By Closing sock A/c 22500
To Gross profi t c/d 47140
159775 159775

P&L Account

Particulars Amount Particulars Amount

To Rent 9000 By Gross Profit b/d 47140
To Salary & wages 9000
To Transportation 2750
To Electricity 6600
To General Expenses 890
To Net Profit c/d 18900
47140 47140

Balance Sheet as on March 31st 2012

Liabilities Amount Assets Amount

Creditors 22800 Stock 22500
Capitial (Bal fig) 41600 Bank 20500
Net Profit 18900 Cash 10500
Debtors 14800
Investment 15000
83300 83300

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