Financial Accounting
Single Entry System
Part A: Discussion of basic theories in regard to different
methods of finalisation of accounts from incomplete records including (1) definition
of Single Entry System, and (2) Format of Statement of Profit and Loss under the
Statement of Affairs Method of Single Entry System of Accounting.
Part B: Fourteen Illustrations with Solutions.
Introduction
Single entry system may be defined as a system in which accounting
records are not kept strictly according to the double entry principles of
bookkeeping. In other words, any set of procedures for ascertaining profits
that does not provide for the analysis of each transaction in terms of the
double entry system of bookkeeping is generally referred to as single entry
system. Therefore, it is clear that the expression single
entry does not mean that there is only one entry for each
transaction. Strictly speaking, single entry
system constitutes preparation of final accounts from incomplete records
rather than single entry accounting. Since all the transactions are not
recorded strictly according to the double entry principles, it is not possible
to prepare a trial balance and check the arithmetical accuracy of the books of
accounts.
Methods of accounting for determining
profit or loss under the single entry system
Under
single entry system of accounting following accounts are usually kept on
regular basis mainly with a view to ensuring necessary control on the cash
flows of the enterprise:
1.
Debtors’ accounts,
2.
Creditors’ accounts, and
3.
Cash book.
Since no other accounts are opened and maintained as a part of the
double entry system, it is not possible to prepare a trial balance in order to
prepare the final accounts at the end of the accounting year. Two different
methods as follows have been, therefore, developed for determining the profit
or loss under the single entry system:
a)
Statement of affairs method, and
b)
Conversion method.
Statement of Affairs Method
The necessary steps under this method may be as follows:
STEP: 1
Calculate opening capital by preparing a statement of affairs at the beginning of the year. A statement of affairs is a statement of the assets, liabilities and capital prepared from incomplete records. The statement of affairs is prepared in the same way as a balance sheet is prepared. All the assets are shown on the right-hand side (i.e. Asset Side) and all the liabilities are shown on the left-hand side (i.e. Liability Side) of the statement of affairs. If the total of the right-hand side (i.e. total of all assets) is greater than the total of the left-hand side (i.e. total of all liabilities), the difference represents opening capital.
STEP: 2
Ascertain the drawings during the year.
STEP: 3
Ascertain the capital introduced during the year.
STEP: 4
Calculate closing capital by preparing a statement of affairs at the end of the year with the value of assets and liabilities at the end of the year before considering any adjustments in regard to the same assets and liabilities.
STEP: 5
Prepare statement of profit and loss for the year ended.................as
follows:
STEP: 6
Prepare final statement of affairs at the end of the year after
considering and incorporating therein the necessary adjustments in regard to
the assets and liabilities as appeared in the closing statement of affairs in
STEP: 4.
Important note:
Net profit for the year will be calculated on cash
basis only if it is instructed in the problem as such. If nothing specific has
been instructed in the problem in this regard, the net profit for the year will
be calculated on accrual basis.
Conversion Method
The
necessary steps under this method may be as follows:
STEP: 1
A statement of affairs should be prepared at the beginning
of the year to know the opening capital. But at this initial stage it is to be
prepared as far as possible with the available information and it may be left
incomplete for the time being.
STEP: 2
Prepare a cash book (with cash and bank columns) with the information available from bank statement or pass book. The shortage on the debit side of cash column represents cash sales or collection from debtors or capital introduced or sundry income. Similarly, the shortage on the credit side of cash column represents cash purchases or payment to creditors or drawings or sundry expenses.
STEP: 3
Prepare (i) Total debtors’ account, (ii) Total
creditors’ account, (iii) Bills receivable account, (i v) Bills payable
account, (v) Total sales account, and (vi) Total purchases account. Preparation
of these accounts will help finding out different missing information
regarding:
(a)
Opening balance of debtors,
(b)
Closing balance of debtors,
(c)
Opening balance of creditors,
(d)
Closing balance of creditors,
(e)
Credit sales,
(f)
Credit purchases, etc.
STEP: 4
Complete the statement of affairs (left incomplete at
STEP: 1) with the available information. If the total of the right-hand side of
the statement of affairs is greater than the total of the left-hand side, the
difference represents opening capital.
STEP: 5
Prepare trading account, profit and loss account and
balance sheet from all the available information.
Important note:
The steps under the conversion method as stated above are general in nature. In actual practice, these may be modified suitably in accordance with the specific requirements of a given problem.
Part B
Financial Accounting
Single Entry System
Selected Problems
Illustration:
1
Mr. Prakash keeps
his accounts on single entry system. He has given following information about
his assets and liabilities.
|
Item |
On 31.3.15 (Rs) |
On 31.3.16 (Rs) |
|
Creditors |
55,200 |
58,500 |
|
Cash and bank |
600 |
1,500 |
|
Bills payable |
26,400 |
28,200 |
|
Bills receivable |
16,200 |
18,300 |
|
Debtors |
45,600 |
56,000 |
|
Stock in trade |
31,000 |
47,300 |
|
Machinery |
66,200 |
78,000 |
|
Computer |
18,000 |
17,000 |
During the year
Prakash brought in additional Rs 7,500 cash in business. He withdrew goods of
Rs 2,100 and cash of Rs 7,200 for his personal use. Interest on opening capital
is to be given at 5% and interest on drawing is to be charged at 10%.
Prepare statement
of profit or loss for the year ended 31.03.2016.
Illustration:
2
On 1st April
2012, Neha started a beauty parlour. She acquired a shop for Rs 12, 00,000 and
paid Rs 2, 00,000 for interior fittings. She put Rs 4, 00,000 into business
bank A/c. She carried on till 31st March 2013, when she wanted to
know what the parlour has earned over the period. She has approached you to
find out the business results with the following information as on 31.03.2013:
In addition to the
shop and fitting she had following possessions: Stock Rs 6, 00,000, Motor car
(purchased on 30-09-2012) Rs 5, 50,000, Cash at bank Rs 2, 50,000. Based on her
limited knowledge she has told you to charge depreciation of 2% p.a. on shop,
5% p.a. on fittings and 20% p.a. on car.
On 31.3.2013, Rs 1,
40,000 was payable to creditors, and Rs 1, 00,000 to a friend for money
borrowed for business. She had withdrawn Rs 2,000 per month from the business.
Prepare her
statement of profit or loss for the year ended 31.03.2013.
Illustration:
3
Mr. Raman starts a
business with Rs 30,000 cash as his capital on January 1, 2016. At the close of
the year the financial position of his business was as follows:
Creditors Rs
20,000, Cash at Bank Rs 15,000, Debtors Rs 25,000, Stock Rs 20,000, Plant Rs
40,000.
During the year, Mr
Raman drew Rs 1,000 every month. On July 1 2016, he introduced further capital
amounting to Rs 15,000.
You are required
(i)
To ascertain the profit or loss made by
him during the year 2016, and
(ii)
To prepare the Final Statement of
Affairs as at 31.12.2016.
Following
adjustments are required to be made:
Plant to be
depreciated at 10 % and a reserve of 2 ½ % is to be raised against debtors.
Illustration:
4
The following
information is available from Sachin who maintains books of account on single
entry system.
|
Particulars |
01.04.16 (Rs) |
31.03.17 (Rs) |
|
Cash and bank |
20,000 |
21,000 |
|
Sundry debtors |
17,000 |
25,000 |
|
Stock in trade |
40,000 |
60,000 |
|
Furniture |
29,000 |
29,000 |
|
Creditors |
32,000 |
22,000 |
|
10% Loan from
Mrs. Sachin |
30,000 |
30,000 |
Sachin withdrew Rs
5,000 from the business every month for meeting his household expenses. During
the year he sold investments held by him privately for Rs 35,000 and invested
the amount in his business. At the end of the year 2016-17, it was found that
full year’s interest on loan from Mrs. Sachin had not been paid. Depreciation @
10% p.a. was to be provided on furniture for the full year. Shop assistant was
to be given a share of 5% on the profits ascertained before charging such
share.
Calculate profit earned
by Sachin during the year ended 31.03.2017 and also prepare his Final Statement
of Affairs as at 31.03.2017.
Illustration:
5
The books of Mr. Z showed the following information:
|
Particulars |
01.01.16 (Rs) |
31.12.16 (Rs) |
|
Bank balance |
Nil |
50,000 |
|
Debtors |
Nil |
87,500 |
|
Creditors |
Nil |
46,000 |
|
Stock |
50,000 |
62,500 |
|
Fixed assets |
7,500 |
9,000 |
The following are
the details of the bank transactions (figures in Rs) for the year 2016:
|
Particulars |
Rs |
|
Receipts from
customers |
3,40,000 |
|
Payment to
creditors |
2,80,000 |
|
Capital brought
in |
5,000 |
|
Sale of fixed
assets |
1,750 |
|
Expenses paid |
49,250 |
|
Drawings |
25,000 |
|
Purchase of fixed
assets |
5,000 |
Other
information:
1.
Cost of goods sold Rs 2,60,000;
2.
Gross profit @ 25% on cost of goods
sold;
3.
Book value of fixed assets sold Rs
2,500.
Prepare trading,
profit & loss account for the year ended December 31, 2016 and balance
sheet as at that date.
Illustration:
6
From the following
particulars presented by Rama Brothers, who maintain their accounts under
Single Entry System, calculate total purchase and total sales.
|
Particulars |
01.04.12 (Rs) |
31.03.13 (Rs) |
|
Debtors |
28,000 |
24,000 |
|
Bills Receivable |
14,000 |
15,000 |
|
Creditors |
16,000 |
32,000 |
|
Bills Payable |
8,000 |
15,000 |
Transactions during
the year:
|
Particulars |
Rs |
|
Cash received from
debtors |
2,00,000 |
|
Cash paid to
creditors |
1,60,000 |
|
Discount allowed |
1,000 |
|
Discount received |
2,000 |
|
Bad debts |
3,000 |
|
Return inwards |
5,000 |
|
Return outwards |
6,000 |
|
Bills Receivable
dishonoured |
4,000 |
|
Cash paid against
Bills Payable |
10,000 |
|
Cash received
against Bills Receivable |
16,000 |
|
Cash Sales |
60,000 |
|
Cash Purchase |
40,000 |
Illustration:
7
Mrs. Laxmi, a
retail trader needs final accounts for the year ended 31-03-2013 for the
purpose of taking a bank loan. However, she informs you that principle of double
entry had not been followed. With following inputs, prepare a Profit & Loss
A/c for the year ended 31-03-2013 and Balance sheet as on 31-03-2013. Details
of receipts and payments are as follows:
(1)
Cash deposited into bank Rs 3,500
(2)
Dividend on personal A/c deposited into
bank Rs 250
(3)
Tuition fees of Laxmi’s daughter paid by
cheque Rs 4,500
(4)
Rent for the year paid by cheque Rs 9,000
(5)
Cash received from debtors Rs 52,500
(6)
Paid to creditors Rs 40,025 by cheque
(7)
Salaries & wages paid in cash Rs 9,000
(8)
Transportation paid in cash Rs 2,750
(9)
Office electricity paid in cash Rs 6,600
(10) Electricity (house)
paid in cash Rs 7,200
(11) General expenses
paid in cash Rs 890.
Opening
and closing balances of assets & liabilities:
|
Particulars |
31.03.12 (Rs) |
31.03.13 (Rs) |
|
Stock in trade |
42,500 |
22,500 |
|
Cash at bank |
55,500 |
20,500 |
|
Cash in hand |
10,850 |
10,500 |
|
Debtors |
16,800 |
14,800 |
|
Creditors |
15,600 |
22,800 |
|
Investments |
15,000 |
15,000 |
Mrs. Laxmi draws Rs
6,000 from bank on monthly basis. She also informs you that some debtors
deposit cheques directly into bank and there are no cash sales (i.e. all the
sales are credit sales).
Illustration:
8
Mr. Kumar kept no
books of accounts for his business. An analysis of his rough Cash Book for the
calendar year 2015 shows the following particulars:
|
Receipts |
Rs |
Payments |
Rs |
|
Received from
debtors |
60,000 |
Overdraft as on
1.1.2015 |
7,400 |
|
Further capital
introduced |
5,000 |
Paid to creditors |
25,000 |
|
|
|
Business expenses |
10,000 |
|
|
|
Wages paid |
15,500 |
|
|
|
Proprietor’s
drawings |
3,000 |
|
|
|
Balances as on
31.12.2015: |
|
|
|
|
Cash at bank |
4,000 |
|
|
|
Cash in hand |
100 |
|
|
65,000 |
|
65,000 |
The following
information is also available:
|
Particulars |
31.12.14 (Rs) |
31.12.15 (Rs) |
|
Debtors |
53,000 |
88,000 |
|
Creditors |
15,000 |
19,500 |
|
Stock in trade |
17,000 |
19,000 |
|
Plant and
Machinery |
20,000 |
20,000 |
|
Furniture and
Fittings |
1,400 |
1,400 |
|
All the sales and purchases were on credit. |
||
From the above
particulars prepare Trading and Profit and Loss Account for the year ended 31-12-2015
and a Balance Sheet as at that date after providing for depreciation on Plant
and Machinery @ 10%, and on Furniture and Fittings @ 5%, per annum.
Illustration:
9
Mr. Jaiswal
commenced business as a Cloth Merchant on 1st January, 2015, with a
capital of Rs 2,000. On the same day, he purchased furniture for cash Rs 600.
The books are maintained by Single Entry System. From the following particulars
(i)
Calculate the cash in hand as on 31st
December, 2015,
(ii)
Prepare a Trading and Profit and Loss
Account for the year ending 31st December, 2015, and
(iii)
Prepare a Balance Sheet as at 31st
December, 2015 :
|
Particulars |
Rs |
|
Sales (including
cash sales Rs 1,400) |
3,400 |
|
Purchases (incl.
cash purchases Rs 800) |
3,000 |
|
Jaiswal’s
drawings |
240 |
|
Salaries to staff |
400 |
|
Bad debts written
off |
100 |
|
Business expenses |
140 |
|
Stock of goods as
on 31.12.2015 |
1,300 |
|
Sundry debtors as
on 31.12.2015 |
1,040 |
|
Sundry creditors
as on 31.12.2015 |
720 |
Mr. Jaiswal took
cloth costing Rs 100 from the shop for private use and paid Rs 40 cash to his
son, but omitted to record these transactions in his books. Provide
depreciation on furniture at 10 % p.a.
Illustration:
10
Mr. Niladri Das is
a small trader. He maintains no books but only an account with a bank in which all
takings are lodged after meeting business expenses and his personal drawings
and in which all payments for business purchases are passed through.
You are required to
ascertain his trading result for the year ended 31-3-16 and Balance Sheet as on
that date from the following information:
(i)
The bank statement shows deposits during
the year of Rs 12,020 and withdrawals of Rs 11,850.
(ii)
The Assets and Liabilities on 31-3-16
were: Stock Rs 1,100; Book Debts Rs 1,150; Bank balance Rs 320; Furniture Rs
2,000 and Trade creditors Rs 400.
(iii)
In the absence of reliable information,
estimates are supplied on the following matters:
(a)
The Stock and Book Debts have each
increased by Rs 100 during the year. There was no purchase or sale of furniture
during the year.
(b)
The trade creditors were Rs 200 on 1-4-15.
(c)
During the year the personal expenses
amounted to Rs 800 and business expenses Rs 700.
Illustration:
11
The Statement of
Affairs of Mr. D. Modak on Saturday, the 31st December, 2015 was as
follows:
|
Liabilities |
Rs |
Assets |
Rs |
|
Capital |
50,000 |
Fixed assets |
30,000 |
|
Sundry creditors |
10,000 |
Stock in trade |
10,000 |
|
Liability for
exp. |
1,000 |
Sundry debtors |
15,000 |
|
|
|
Cash at bank |
5,000 |
|
|
|
Cash in hand |
1,000 |
|
|
61,000 |
|
61,000 |
Mr. Modak did not
maintain his books on the Double Entry System. But he carefully follows the
following system:
1.
Every week he draws Rs 200.
2.
After meeting his weekly sundry expenses
(Rs 100 on average) and his drawings, the balance of
weekly collections is banked at the commencement of the next week.
3.
No cash purchase is made and creditors
are paid by cheques.
4.
Sales are at fixed price which include
20% profit on sales.
5.
Credit sales are few and are noted in a
diary. Payments are received in cheques only from such parties.
6.
Expenses other than sundries and other special
drawings are made in cheques.
7.
All unpaid bills are kept in a file
carefully.
The following are
his bank transactions for 13 weeks:
|
|
Rs |
|
Rs |
|
Balance as on 01,01.2016 |
5,000 |
Creditors paid |
40,000 |
|
Cheques deposited |
2,000 |
Rent paid |
600 |
|
Cash deposited |
42,000 |
Expenses (other Than Sundry Exp) |
3,000 |
|
|
|
Balance as on 01,04.2016 |
5,400 |
|
|
49,000 |
|
49,000 |
After 13 weeks on 1st
April (Monday) the entire cash was missing when it was to be deposited into the
bank. The following further facts are ascertained:
1.
Stock on that day was valued at Rs
4,000;
2.
Sundry Debtors amounted to Rs 20,000 as
per diary; and
3.
Sundry Creditors were Rs 8,000 as per
unpaid bills file.
Find out the amount
of cash missing.
Illustration:
12
The following
information is supplied from defective records. You are required to prepare
Trading and Profit & Loss Account for the year ended 31st
December, 2015 and Balance Sheet as on that date:
|
Particulars |
01.01.15 (Rs) |
31.12.15 (Rs) |
|
Creditors |
15,770 |
12,400 |
|
General expenses
owing |
600 |
330 |
|
Sundry assets |
11,610 |
12,040 |
|
Stock in trade |
8,040 |
11,120 |
|
Cash in hand and
at bank |
6,960 |
8,080 |
|
Debtors |
? |
17,870 |
Details
relating to the year’s transactions:
|
|
Rs |
|
Cash and discount
credited to debtors |
64,000 |
|
Returns from
debtors |
1,450 |
|
Bad debts |
420 |
|
Sales – Cash and
Credit |
71,810 |
|
Discount allowed
by creditors |
700 |
|
Returns to
creditors |
400 |
|
Capital
introduced (paid into bank) |
8,500 |
|
Receipts from
debtors (paid into bank) |
62,500 |
|
Cash purchases |
1,030 |
|
Expenses paid by
cash |
9,570 |
|
Purchase of
machinery by cheque |
430 |
|
Cash withdrawn
from bank for office use |
9,240 |
|
Personal drawings
by cheque |
3,180 |
|
Cash deposited
into bank |
5,000 |
|
Cash in hand at
end |
1,200 |
|
Payments to
creditors by cheque |
60,270 |
Illustration:
13
Mr. Dave does not
maintain his accounts strictly on double entry system. The following statement
of affairs was, however, prepared by him as on 31st March, 2014:
|
Liabilities |
Rs |
Assets |
Rs |
|
Capital |
28,000 |
Leasehold land |
2,075 |
|
Sundry creditors |
3,170 |
Plant &
Machinery |
4,940 |
|
Bills Payable |
2,150 |
Stock in trade |
9,673 |
|
|
|
Book debts |
15,550 |
|
|
|
Cash in hand |
1,082 |
|
|
33,320 |
|
33,320 |
On 31st
March, 2015 it was learnt that he had introduced further capital of Rs 1,000 on
1st July, 2014 and he had drawn Rs 1,580 on various dates during the
year. It was also ascertained that the proprietor had taken Rs 75 worth of
goods for his own use.
Statement prepared
on the same date disclosed that book debts were Rs 14,640, creditors were Rs 2,039
and bills payable were Rs 1,775. The stock was valued at Rs 11,417 and the cash
in hand amount to Rs 917 on the same date.
You are required to
prepare:
(a) a statement of
profit or loss for the year 2014 – 15; and
(b) a statement of
affairs of Dave as on 31st march, 2015
For preparing the
above two statements please take into consideration the following:
5% reserve to be
created on book debts, 7 ½ % depreciation to be written off plant and
machinery, Rs 125 to be written off the leasehold land, and 5% interest to be
allowed on capital.
Illustration:
14
Mr. Akash Ambani
does not maintain complete double entry books of accounts. From the following
details determine profit for the year 2014 and prepare a statement of affairs
as at the end of the year 2014.
1.
Furniture (Cost price Rs 1,000) was sold
for Rs 5,000 on 1st January, 2014.
2.
10% depreciation is to be charged on
furniture.
3.
Mr. Ambani has drawn Rs 1,000 per month.
4.
Rs 2,000 was invested by Mr. Ambani in
2014.
|
Particulars |
01.01.14 (Rs) |
31.12.14 (Rs) |
|
Stock |
40,000 |
60,000 |
|
Debtors |
30,000 |
40,000 |
|
Cash |
2,000 |
1,000 |
|
Bank |
10,000 |
5,000 (overdraft) |
|
Creditors |
15,000 |
25,000 |
|
Outstanding
expenses |
5,000 |
8,000 |
|
Furniture (at
cost) |
3,000 |
2,000 |
Bank balance on 1st
January, 2014 is as per cash book, but the bank overdraft on 31st December,
2014 is as per bank statement. Rs 2,000 cheques drawn in December, 2014 have
not been encased within the year.
Click here for Solution: 14 in PDF
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