In bookkeeping, single entry is a basic skill and this method of recording transaction is not perfect for professional reports and statement, but single entry bookkeeping could be said to be the very beginning. In fact it is extremely basic, which is why it is not used by any business of significance.
Some managers might think that they use it, but what actually happens is that the accountants take the books and documents away and convert them into double entry records.
Single entry bookkeeping is described here in order to show why double entry bookkeeping is almost universally used. However, a small body, such as perhaps a birdwatchers’ club, just might use the single entry version. So might a sole trader or small partnership, provided that the accounts are not audited. As the name suggests, single entry bookkeeping involves writing down each transaction just once. It is in fact the simple listing of money paid and received. Every time a cheque is written, the bookkeeper records in a book the date, the amount and the person or business being paid. Every time something is paid into the bank, the date, amount, and person or business from whom the money was received is recorded elsewhere in the book.
Cash paid out and received is recorded in a similar way.
If the bookkeeper has been very careful, an accurate receipts and payments account can be prepared from the single entry records. It would, though, be wise to verify the figures as far as possible. After allowing for the starting balance, cash actually in the cash box should equal the cash received less the cash paid out. The balance on the bank statement should equal money banked less cheques written, after allowing for the opening balance and items that have not yet reached the statement.
Records kept in this way have severe limitations. Among them are:
- If a receipt or payment is entered in the book as an incorrect amount, the mistake may not be noticed.
- If the amount of a receipt or payment is entered correctly but the type of receipt or payment is wrongly classified, the mistake may not be noticed. It is only fair to say that this can also happen with double entry bookkeeping, though it is perhaps less likely.
- Money owing to or by the organization is not shown. Just possibly nothing is owing to or by the organization, but it is a severe limitation.
- Long-term assets are not shown. A car purchased two years ago for £20,000 does not appear at all in the records for the current year, even though it still has a significant value.
- Important things like depreciation and bad debts are not shown. With considerable care it may be possible to prepare an accurate receipts and payments account, and this is certainly better than nothing, but double entry bookkeeping is much superior.