The World without Bankruptcy Laws
Bankruptcy is one of the natural states which a company may find itself in. Entrepreneurship is primarily about taking risks. When companies take risks, some of them succeed, whereas others fail. Hence failure is a natural part of the business. However, many critics of bankruptcy laws believe that there isn’t a need for an elaborate […]
The Wirecard and Infosys Scandals are a Lesson on How NOT to Treat Whistleblowers
What is the Wirecard Scandal all about and Why it is a Wakeup Call for Whistleblowers Anyone who has been following financial and business news over the last couple of years would have heard about Wirecard, the embattled German payments firm that had to file for bankruptcy after serious and humungous frauds were uncovered leading […]
Why the Digital Age Demands Decision Makers to be Like Elite Marines and Zen Monks
How Modern Decision Makers Have to Confront Present Shock and Information Overload We live in times when Information Overload is getting the better of cognitive abilities to absorb and process the needed data and information to make informed decisions. In addition, the Digital Age has also engendered the Present Shock of Virality and Instant Gratification […]
Why Indian Firms Must Strive for Strategic Autonomy in Their Geoeconomic Strategies
Geopolitics, Economics, and Geoeconomics In the evolving global trading and economic system, firms and corporates are impacted as much by the economic policies of nations as they are by the geopolitical and foreign policies. In other words, any global firm wishing to do business in the international sphere has to be cognizant of both the […]
Why Government Should Not Invest Public Money in Sports Stadiums Used by Professional Franchises
In the previous article, we have already come across some of the reasons why the government should not encourage funding of stadiums that are to be used by private franchises. We have already seen that the entire mechanism of government funding ends up being a regressive tax on the citizens of a particular city who […]
Single entry accounting systems record only one side of every transaction. This happens because they use one entry to record every transaction. Therefore single entry system does not use nominal and real accounts. The emphasis is on cash and accounts receivable.
Single entry accounting system can be described as a system that businesses use to get by rather than something that companies may find desirable.
Single entry system is used by small firms that have just started business. Such firms do not have the resources that are required to put up a full-fledged accounting system in place. Hence they begin with a single entry accounting system. However as and when their business grows most firms are compelled to adopt the double entry system. This is because the single entry system is highly inefficient and can be used only by sole proprietors when the scale of business is very small and the transactions to be undertaken are not very complicated.
The biggest problem with single entry bookkeeping system is that of incomplete records. Single entry system records only transactions that the firm is undertaking with external parties. There are numerous transactions within the firm that are of vital importance and need a place in the financial statements. However, the single entry system ignores these needs and gives incomplete information to the management.
Single entry accounting system does not have provisions for reconciliation of accounts. This means that the system does not have inbuilt error detection. Therefore, if a clerk is doing the task of making entries in the book, the system may be prone to clerical errors. This could lead to management having insufficient information or no information when they have to make decisions.
Single entry accounting system is highly prone to frauds and embezzlement. There is only one book of account rather than an elaborate accounting system. Hence, the internal checks are few. In fact they are non-existent. The person making the accounts could single handedly manipulate the books of accounts and misappropriate the resources of the firm.
To counter this problem, Luca Pacioli and other merchants of Venice created the double entry accounting system. This system proved to be very effective and useful and soon became the gold standard for the industry.
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