Different Systems of Bookkeeping.—Except in small enterprises, the only satisfactory system of bookkeeping is double entry. The system—or rather lack of system—known as single entry antedates double entry and is met today occasionally, particularly in small retail stores. It seems necessary, therefore, to give the student an explanation of its main features.

An early writer defines bookkeeping as “the art of recording mercantile transactions in a regular and systematic manner.“ In further elucidation he says: “A merchant’s books should contain every particular which relates to the affairs of the owner. They should exhibit the state of all the branches of his business; the connection of the various parts; the amount and success of the whole. They should be so full and so well arranged as to afford a ready information in every point for which they may be consulted.“ Single entry hardly measures up to these requirements, but there are places and circumstances where it gives results satisfactory enough. Bookkeeping has had a development contemporaneous with industrial life. Only simple records are needed so long as industries are simple, but with the increasing complexity of industrial enterprise, previous methods become inadequate.

Single Entry.—Single entry may be defined as that method of keeping records which sorts out and classifies debits and credits only as they apply to persons, the proprietor included, and usually also to cash. To justify the strict application of the term, a system must needs keep record of all transactions. Methods—not systems—of single-entry account-keeping are sometimes met with which do not make full record. The point of view of single entry is personal. All features of the business not connected with persons are looked upon as being under the direct hand of the owner and subject to his control. But uncompleted transactions with persons, whether customers or creditors, are not capable of such oversight without the aid of individual, classified records. The necessity of safeguarding the cash and keeping its flow under review makes the classified cash record an almost universal feature of single entry. As a usual thing, therefore, single entry is characterized by: (1) a record of all transactions; (2) a debit and credit analysis applied only to persons and to cash; and (3) a classified and grouped record, i.e., ledger record, only as to persons and cash. It does not analyze every transaction in its relation to the business as a whole. It has a single point of view, i.e., it considers only persons and cash and makes entries accordingly. Hence, its name.

Books Required and Methods of Record—The Journal.—In a single-entry system three books of account are necessary—the journal, the cash book, and the ledger. The cash book records all cash transactions, receipts and payments, classified as to persons but otherwise in narrative form. The journal records all other transactions following the same method. The ledger makes secondary record only under the heads of customers, creditors, and proprietor. The journal is the standard two-column journal, the first column being used as an “items“ column, and the second for totals. A three-column journal is advantageous, the first column being used for items and for all unposted amounts, the second for debit postings, and the third for credit postings. This aids in proving the ledger postings, as will later be seen. Transactions affecting persons are recorded under those persons’ names followed by “Dr.” or “Cr.,” according to the analysis of the transaction. This is necessary since position does not show it, the method of left and right position for debit and credit not being used in the single-entry journal. All other transactions are recorded in narrative form, merely a memorandum being made of them.

Cash Book.—The cash book is the same as for double entry, receipts on the left and disbursements on the right-hand page or column, according as a double- or single-page cash book is used. Where the double page is used, one of the two columns on either side is sometimes used for the exclusive extension of the amounts to be posted to personal accounts. This facilitates posting, since these are the only amounts which are to be transferred to the ledger.

Ledger.—The single-entry ledger is the same as the double-entry and uses the debit and credit principle of double entry. As stated above, accounts are kept only with persons, including the proprietor. It is seen, therefore, that single-entry books make a record of all transactions but fail to analyze all those transactions in their relations to one another and in their effects upon the business.

Single Entry as Adapted to Modern Needs.—Recognizing the value of the analysis secured by double entry but overestimating the work required to make the record, some concerns have developed single-entry systems through use of subsidiary records and columnar books, from which they derive very full information for management purposes. A sales journal gives volume of sales, a purchase journal shows the amount of goods purchased, and analytic columns in the cash book show the main sources of receipts and their amounts, and the main classes of expenditures and their amounts. A bill book is used for recording notes receivable and payable, and inventory books for scheduling all kinds of property, assets and liabilities. All of these make a system approaching the double entry in completeness of detailed information, but one which lacks the fundamental principle on which the double entry rests, viz., an equality of debits and credits brought about by a classified analysis of every transaction into its debit and credit elements at the time of first entry on the books. It does not tie together the whole into a mathematically provable system.

Since the advent of double entry there have always been strong adherents to the single-entry method. An early writer, William Perry, presented in 1777 a treatise on bookkeeping by either method. Most small enterprises, even if they keep their records by the single-entry method in the beginning, usually adopt the double-entry system as their business increases, realizing that the latter furnishes better accounting control than is obtainable under simple entry.

Debits and Credits.—To one who knows the double-entry method, single-entry bookkeeping presents few difficulties. Debit and credit as applied to personal accounts are usually of easy determination and are exactly the same as in double entry. The debits and credits for cash are based on the same principles in both systems. The method of writing them in the books of original entry was sufficiently indicated where those books were explained. Posting is done just as in double entry. With regard to all work upon single-entry books, there is always a temptation to do slovenly, inaccurate work because the system does not provide internal proof as the double-entry system does. Thus, where rebates have been allowed, only the net amount received may be shown in the cash book with explanation that the payment is in full of account. After this amount is posted to the customer’s account, the item does not fully offset the original debit and it is necessary to make a note in the ledger to the effect that the item is fully settled. The same thing holds true for creditors’ accounts. Of course, this is not good bookkeeping whether practiced in single or double entry.

The Proprietor’s Account.—The handling of the proprietor’s account under single entry is very similar to that under double entry. The proprietor’s capital account shows the original investment on the credit side; his personal account, if kept separately, is debited with his withdrawals, whether in merchandise or cash. Inasmuch as the single-entry ledger does not show the profit or loss, the manner of handling the proprietor’s account at closing is somewhat different. The profit, as determined by the method shown a little later, may be brought directly and without journal entry from the statement of profit and loss into the proprietor’s capital account so that this account will show the true net worth of the business as at that time. The personal account is simply ruled off after its figures have been used in determining profit.

Proof of Posting.—The only proof of work possible under single entry is a checking of the secondary record against the original. A trial balance of the ledger cannot be taken. A schedule or list of account balances may be prepared and debit and credit totals of the list made. This compared with a similar list prepared at the close of the last period will show the changes that have taken place during the current period. A list of the debits and credits to personal accounts in books of original entry for this period must check against the net change shown by the above comparison. Virtually this amounts to a second posting of the items, and if the two postings agree, the presumption is that the ledger is correct. The use of the “personal” posting column for the cash book as explained above, and of similar columns in sales and purchase journals, makes possible a much easier debit and credit summary of the books of original entry if some proof of posting is desired.

Profit and Loss.—Inasmuch as many of the factors affecting the net worth have not been analyzed in making the original entry, no detailed showing of profit and loss, as understood under double entry, can be made. It is, of course, possible to go back over the books and make such an analysis, but this would result practically in rewriting the books on a double-entry basis. Single entry, therefore, has recourse to another method which is characterized by a complete inventory-taking and appraisal. It is sometimes called the “asset and liability method” as explained in the following sections.

Inventory and Appraisal.—A physical inventory or count of all assets, fixed, current, and deferred, is made. The books furnish only the accounts receivable and the cash. All other assets are usually made up by physical count and reappraisal. It is consequently very easy to lose sight of some assets, particularly in the case of additions and betterments to existing assets. For the deferred items, the inventory of supplies on hand supplemented by the proprietor’s memory is the customary source.

Liabilities.—Liabilities are more difficult of correct determination. The accounts payable are shown on the ledger, the notes payable should be shown in the bill book or by stubs in the bound blank book of notes. Any unpaid bills may be found in the current file of unpaid invoices if one is maintained. For all other liabilities, including deferred income, the memory must serve. The haphazard manner in which this statement must be made up is therefore apparent.

Accrued and Deferred Items.—There is usually little or no notice taken of accruals and deferred items on account of the difficulty in securing trustworthy and full information. The theory of averages, viz., that these items at one period will offset, in the long run, those at another, is the theory by which the failure to include accruals and deferred data is excused. A comparison of this method with the double-entry method for handling similar items throws into strong relief the inaccuracies of the single-entry method.

The Balance Sheet and the Determination of Profit.—The balance sheet, listing all assets and all liabilities, makes a determination of proprietorship or net worth possible. Under the inventory and appraisal method it must be taken periodically. A comparison of the net worths as shown by successive statements develops the gain or loss for the period, provided no other elements affecting net worth have become involved. The additional element to be taken into consideration is the relation of the proprietor to the funds of the business. He may have withdrawn some of the assets or he may have made additional investments, so that the condition of the assets as shown at the end of the period is not entirely the result of business activities and transactions.

Profits determination by this method, therefore, must take cognizance of the two factors: (1) comparative net worths, and (2) proprietor’s interim drawings and investments. A withdrawal of cash during the period equal in amount to the profits for that period would result in the same net worth at the close as at the opening of the period. Drawings in excess of profits would cause a net worth less at the end than at the beginning; and withdrawals less than profits would cause an increased net worth. But under none of the three cases stated would a comparison of the two net worths show the actual profits.

Similarly, additional investments have an opposite effect, bringing about an increase in closing net worth in the exact amount of the additional investment and so obscuring the true amount of profit or loss for the period. Accordingly, the increase or decrease of net worth as shown by the comparative statements of financial condition must be adjusted in accordance with the proprietor’s withdrawals and additional investments to make a correct determination of profits. To determine the profits for the year, to the change in net worth—treated algebraically, i.e., positive if an increase and negative if a decrease—must be added the withdrawals, and from this sum the additional investments must be subtracted.

Single and Double Entry Compared.—From the foregoing discussion and from the illustrations in the next chapter it will be seen that single entry can be worked through to a conclusion as to profit and loss. It tells nothing, however, of the sources of that profit or loss, nor does it give any control over expenses. It is true that a comparative statement of assets and liabilities as shown in Chapter IV, presenting increases and decreases of the various assets and liabilities, will give additional information, but even that does not show the reasons for the change and so affords no basis for control. For such purposes the statistical totals of the sales and purchase records, and of the cash book, where analytical columns are used, furnish the only information available under single entry. Its only advantage, then, is brevity, the saving of labor in making the record. No difficult analysis is met with in the original record and posting is a less heavy task than in double entry. But brevity and labor-saving are secured at the expense of the very information which the business man needs.

The advantages of double entry may be summarized as follows:

Where the above advantages and information are not desired nor necessary, as in a very simple business under the immediate supervision of the proprietor, or in simple executorship transactions, etc., single entry may suffice.

Change from Single to Double Entry.—If it is desired to change from single to double entry, all that is necessary is a complete inventory and appraisal, to be used as the basis for an opening journal entry, debit and credit, as for any opening entry. If the former single-entry ledger is to be used, only the items not already posted, i.e., the impersonal items, will be posted from this opening entry. The proprietor’s account should first be adjusted to its correct figure by a determination of profits by the single-entry method. If this is done, no posting to his account is needed from the opening entry for the double-entry books. This opening entry posted will bring the ledger into equilibrium, which will be maintained under the double-entry method. If a new ledger is to be used, the opening entry above referred to will be posted completely—personal and impersonal items—which will of course bring about the equilibrium desired. Thereafter all transactions will be analyzed and entered according to the double-entry system.