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Sunday, July 25, 2010

Disadvantages Of Single Entry System

Although single entry system is a simple and economical system of recording financial transactions of the firm, it has several drawbacks also.The following are some notable drawbacks or disadvantages of single entry system:

1. Unscientific And Unsystematic

The single entry system is unsystematic and unscientific system of recording financial transactions. It does not have any set of fixed rules and principles for recording and reporting the financial transactions.

2. Incomplete System

Single entry system is incomplete system because it does not record the two aspects or accounts of all the financial transactions of the business. It does not maintain any record of the transactions relating to the nominal account and real account except cash account.

3. Lack Of Arithmetical Accuracy

Single entry system is not based on the principles of debit and credit. It fails to provide the arithmetical accuracy of the books of accounts. Trial balance can not be prepared under this system to check the arithmetical accuracy of books of accounts.

4. Does Not Reflect True Profit Or Loss

Under single entry system, the true amount of profit or loss can not be ascertained because it does not maintain the nominal accounts.

5. Does Not Reflect True Financial Position

The single entry system does not maintain real accounts except cash book. Therefore, it can not reveal the true financial position of the business.

6. Frauds And Errors

The single entry system of book-keeping is incomplete, inaccurate and unscientific. It does not help to check the arithmetical accuracy of the books of accounts. Therefore, there is always a possibility of committing frauds and errors in the books of accounts.

7. Unacceptable For Tax Purpose

The single entry of book keeping has incomplete records of the financial transactions of the business. Hence, the tax office can not accept the account maintained under this system for the purpose of assessment of tax.