Single entry system 1.1

Financial Accounting, B.Com , 2nd semester, University of calicut, 2019 syllabus

1. MODULE 1.1 – SINGLE ENTRY SYSTEM OF ACCOUNTING BCM2B02 FINANCIAL ACCOUNTING SEMESTER II B. COM COURSE UNIVERSITY OF CALICUT

2. Meaning

3. Features i. Suitability : This system is suitable for small businesses such as sole trader or partnership firm. Limited companies due to legal provisions, cannot maintain accounting books on Single Entry System.  ii. Preparation of Cash Book : Generally, a Cash Book is prepared in this system in which business as well as private transactions are mixed up.  iii. Preparation of Personal Accounts : Normally under this system, only personal accounts are prepared and real and nominal accounts are avoided. iv. No Uniformity : This system may differ from firm to firm, because same principles are not followed by all the enterprises.  v. Requirement of Original Voucher s : Usually under this system, we have to depend on originally vouchers for collecting the necessary informations.  vi. Preparation of Final Accounts : In the absence of all nominal and real accounts the final accounts cannot be prepared easily. It is posible after converting the available information into double entry system and missing amounts are determined then Trading & Profit & Loss A/c can be prepared. The amount of all assets and all liabilities can also be computed from incomplete records, but they are based on estimates. That is the reason that the statement of assets and liabilities prepared under this system at the end of an accounting period is called a Statement of Affairs instead of Balance Sheet.

4. Uses of Single Entry System i. Simple Method : Single entry is a very simple method of recording business transactions.  ii. Less Expensive : It is less expensive when it is compared to Double Entry System of book keeping.  iii. Suitable for Small Concerns : It is mainly suited to small business concerns with limited number of transactions and very few assets and liabilities.  iv. No Need of Knowledge of Principles of Book Keeping : Under Single Entry System, accounting records can be easily maintained as their maintenance does not require knowledge of the principles of book keeping.  v. Easy to Ascertain Profit or Loss : Ascertainment of profit or loss in much easier. To ascertain profit or loss, the proprietor has to compare the financial position of business at the close of the accounting period with that at the beginning.

5. Limitations of Single Entry System i. Arithmetical Accuracy Cannot be Proved ii. No Control on Assets iii. True Profits cannot be Known iv. Financial Position of the Business cannot be Judged v. No Internal Check vi. Difficult to Ascertain the Business Value  vii. Inadequate for Planning and Control viii. Incomplete and Unscientific System ix. Comparative Study is Difficult

6. #1 – Pure Single Entry In this, no information is available of sales, purchases, and cash and bank balances; only personal accounts are considered. This method cannot be used in the practical world since it does not provide any information regarding cash or the daily transactions #2 – Simple Single Entry This account is kept based on a double entry system, but only two accounts are considered, i.e., the personal and the cash account . Entries are made only from these accounts, and no other account is considered. #3 – Quasi Single Entry A part from the personal and cash accounts, other subsidiary accounts are also maintained. The main ones being sales, purchases accounts, and bill books. Discounts are also recorded in the personal account. Additional vital information like wages, rent, salaries is also available. This method is adopted as a substitute to double entry accounting system

7. Calculation of Profit/Loss

8. A Statement of Affairs is a statement of all assets and liabilities. The difference between the amount of the two sides is taken as capital. The Statement of Affairs has two sides - the right-hand side for assets and the left-hand side for liabilities. To prepare the statement, information has to be collected from various sources. Information about assets will be available from the Cash Book, the Personal Ledger, etc. The value of the Closing Stock will be ascertained by preparing Stock Sheets and valuing the Stock in Hand, at lower of cost and market value. If the trader has any other assets also, like furniture, machinery, etc., the value will be ascertained and included among the assets. The business is likely to have full knowledge of the amounts owing to outsiders .

9. PROCEDURE:

10. Statement of Profit and Loss for the year ended ….... Particulars Amt.(Rs.)   Closing capital XXX Add: Drawings XXX     XXX Less: Additional capital XXX   Adjusted capital XXX Less: Opening capital XXX   Gross Profit/Gross Loss during the year XXX Particulars Amt .(Rs.)  Less: Expenses: Depreciation XXX   Bad debts XXX Provision for doubtful debts XXX   Provision for discount on debtors XXX Outstanding expenses XXX   Interest on capital XXX Income received in advance XXX Interest on bank loan XXX Add: Incomes: Appreciation of assets XXX Outstanding income XXX Prepaid expenses XXX Interest on drawings XXX Net Profit/Net Loss XXX

11. Problem 1

12. Problem 2 Ram maintains books on Single Entry System. He gives you the following information:                                                                                                                                                                                                                                                                                                                                                               Rs. Capital on April 1, 2013                                                                             60,800  Capital on April 1, 2014                                                                             67,600  Drawings made during the Period : April 2013 to March 2014                    19,200  Capital introduced on August 1, 2013                                                          8,000  You are required to calculate profit or loss made by Ram.

13. Problem 3 Rani who keeps her books on Single Entry System, tells you that her capital on 31st March, 2014 was Rs. 18,700 and her capital on 1st April, 2013 Rs. 19,200. She has withdrawn Rs. 8,420 for household purposes Rs. 8,420. She once sold her investment of Rs.2,000 at 2% premium and brought that money into the business. You are required to prepare a Statement of Profit or Loss.

14. Shan, keeps his books under Single Entry System. He provides you, the following information. Calculate Net Profit for the year ending 31-3-2019. Capital on 1/4/2018 Rs.1,00,000 Additional capital during the year Rs.20,000 Capital on 31/3/2019 Rs.1,50,000 Outstanding salary Rs.8,000 Drawings during the year Rs.12,000 Prepaid insurance Rs.4,000 Rent due but not received  Rs.5,000 Problem 4

15. STATEMENT OF AFFAIRS

16. Problem 5

17. Problem 6 Mr. A keeps his books by single entry system. His position on January 1,2010 was as follows:

18. Problem 7

19. PROBLEM 8

20. ASCERTAINMENT OF PROFIT IN PARTNERSHIP FIRMS Profit should be divided in an agreed ratio.

21. Fixed Capital Method Fluctuating Capital Method Two accounts are prepared: Capital Account and Current Account Only a single account is prepared: Capital Account The capital balance remains unchanged Capital balance fluctuates Both Capital and Current Accounts appears in the Balance sheet. Only Capital Account appears in the Balance Sheet.  If this method is used then it must be specified in the Partnership Deed.  If this method is used then it is not necessary to specify the method under the Partnership Deed  Fixed Capital Account will always show a Credit Balance  Fluctuating Capital account may show debit balance as well.

22. A, B and  C were in partnership and towards the end of 2019 most of their records were destroyed by fire. The Balance Sheet as on 31st Dec, 2018 was as follows: The partners' drawings during 2019 have been provided at A Rs.1400, B Rs.1000 and C Rs.650. On 31st Dec 2019, the cash was Rs.3200, Debtors Rs.4025, Stock Rs.5900, Advance payments Rs.25 and creditors Rs. 6040.Machinery is to be  depreciated by 10% per annum and fixtures and fittings 7 ½%, 5% interest is to be allowed on capital. The partners share profits in the proportion of ½, 1/3 and 1/6. You are required to prepare a statement showing the net trading profit for the year 2019 and the division of the same between partners, together with the balance sheet as on 31st Dec. 2019. PROBLEM 9