Accounts of Incomplete Records or Single Entry System
Single Entry –
- It is a system of book keeping in which, as a rule, only the records of cash and personal accounts are maintained. It is always incomplete double entry, varying with circumstances.
- Single entry is a method or variety of methods employed for recording of transactions which ignore the two-fold aspect and consequently failed to provide the businessman with the information necessary for him to be able to ascertain the position.
Features –
- Incomplete System – In this system only one aspect of the transaction is recorded.
- Absence of Uniformity – This method is followed differently in different businesses as there is no set of guiding principles.
- Absence of Universal Suitability – This system is not suitable for medium and large sized businesses.
- Inexpensive System – It does not involve much of expenditure.
- Basis of Recording – The purpose of recording depends on documents as well as the memory of the businessmen.
- Easy Understandability – It does not involve comprehensive system of principles. It is easily understood.
Types of Single Entry –
- Pure Single Entry – The transactions are recorded only in personal accounts.
- Simple Single Entry System – Cash book and personal accounts are maintained under this method.
- Quasi Single Entry – Cash book, Personal accounts and few subsidiary books like purchase, sales books are maintained. A few nominal accounts may also be maintained.
Distinction between Double and Single Entry –
Point of Distinction
|
Double Entry
|
Single Entry
|
Basic principle
|
Both the aspects of transactions i.e. or Dr. and Cr. will be recorded immediately.
|
Both the aspects and even one aspect may not be recorded.
|
Nature of recording
|
Scientific, methodical, systematic and complete.
|
Incomplete and haphazard.
|
Nature of a/c covered
|
Real, personal and nominal.
|
Generally personal, at times real and rarely nominal.
|
Check of accuracy
|
Can be done, as a trial balance can be prepared.
|
Cannot be done as the trial balance cannot be prepared.
|
Final accounts
|
Can be prepared systematically and profit and financial position can be accurately known by preparing trading, P&L, and Balance Sheet.
|
No such a/c can be prepared and profit and loss and financial position cannot be known.
|
Suitability
|
Suitable for all kinds of businesses.
|
Suitable only to small sized businesses.
|
Cost of maintenance
|
Quite expensive as it involves procedures, books of a/c etc.
|
Comparatively less expensive.
|
Capital
|
The balance of capital can be accurately calculated by capital a/c.
|
Capital calculated is not as accurate as it is at the best balancing figure.
|
Degree of reliability
|
Highly reliable as it is based on scientific principles. The books maintained under this are accepted as evidence by the court of law and by the government authorities.
|
This system is not reliable as double entry system because it is unscientific and incomplete.
|
Ease of learning
|
It is an elaborate system of principle rules to maintain the books of a/c.
|
This system involves very few procedures and can be learnt easily.
|
Advantages of Single Entry System:
1. It is a simple method of recording business transactions because an elaborate accounting procedure is not involved in this system.
2. As rules of double entry system are not followed under the single entry system, knowledge of the principles of double entry system of accounting is not necessary for recording business transaction. Hence any person can maintain books of accounts under this system.
3. This system is less costly when compared to double entry system because only a few books are to be maintained and a few staff members are appointed for maintaining the books of accounts.
4. There is economy of time and labors (i.e. a lot of time and labor is saved) under this system because of limited number of transactions of a small business concern adopting this system and lesser number of books of accounts required to be maintained.
5. Single entry is flexible in the sense that the recording procedure (i.e. the procedure of recording transactions in the books of accounts) can be adjusted according to the information needs of the particular business concern.
6. As single entry system is simple and less costly, it is suitable for small business concerns which have less number of transactions, mostly cash transactions.
Disadvantages of Single Entry System:
1. This system is an incomplete system of accounting because the two aspects of each and every transaction are not recorded in the books of accounts.
2. As the two aspects are not recorded, it is not possible to prepare a trial balance and verify the arithmetical accuracy of the books of accounts under this system.
3. As the arithmetical accuracy of the books of accounts cannot be checked by preparing a trial balance, this system gives much scope for carelessness, errors, misappropriation and fraud.
4. As the accounts of purchases, expense, and incomes are not kept under this system, it is not possible to prepare a trading, and profit and loss account to find out the correct profits and losses. The profits or losses ascertained under this system only by comparing the capital at the end of the trading period (i.e. closing capital) with the capital at the beginning of the trading period (i.e. opening capital), are inaccurate and unreliable. The profits are just estimated profits and not real profits.
5. This system does not provide any useful information about the sources of profit or losses (i.e. about the various items of expenses and incomes responsible for profits and losses.)
6. As no real accounts (other than cash account) and personal accounts (other than personal accounts of trade debtors or trade creditors) are maintained under this system, it is not possible to prepare a balance sheet for ascertaining the correct financial position of the business. The financial position of the business ascertained under this system by preparing a statement of affairs, does not reveal the correct financial position of the business because the values of various assets and liabilities shown in the statement of affairs are not proved by accounts but are calculated mainly by estimate and memory.
7. Full information about the business is not available under this system because of incomplete records. So, the value of a business cannot be correctly determined.
8. Comparison of trading results (i.e. profits or losses) and financial position from year to year is not possible under system because of absence of comparable figures of previous year.
9. This system does not satisfy legal requirements regarding the maintenance of proper books of accounts.
10. This system is not accepted in the court of law as evidence.
11. As it is an incomplete system, the actual income of the business concern may be concealed, and tax may be reduced under this system. That means this system encourages tax evasion by the businessmen.
12. The accounts prepared under the single entry system do not inspire confidence in outsiders owing to the lack of any test to check their arithmetical accuracy. So the accounts prepared under this system are less reliable.
13. Inter firm comparison (i.e. comparison of the results of two or more business firms) is not possible under the single entry system, because of the variations in accounting procedures adopted by various firms.
Ascertainment of Profit or Loss in Single Entry System
Statement of Affairs
Proforma of Statement of Affairs
Statement of Affairs as on _______________
Liabilities
|
Amount
|
Assets
|
Amount
|
Creditors
Bills Payable
Outstanding Salaries
Capital (Balancing Figure)
|
xxx
xxx
xxx
xxx
|
Building
Plant and Machinery
Furniture
Investments
Stock
Debtors
Cash in hand
Bills receivables
|
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
|
Total
|
xxxx
|
Total
|
xxxx
|
Statement of Profit or Loss
Proforma of Statement of Profit or Loss
Statement Profit or Loss as on __________________
Particulars
|
Rs.
|
Rs.
|
Closing Capital
Add: Drawings (made during the year)
Less: Additional Capital Introduced
Adjusted capital
Less: Opening Capital
Gross Profit
Less: Expenses
Outstanding expenses
Income received in advance
Bad debts
Provision for Bad debts
Provision for discount on debtors
Depreciation on assets
Reserve for doubtful debts
Interest on loan
Add: Incomes
Appreciation in value of assets
Interest on drawings
Reserve for discount on creditors
Prepaid expenses
Outstanding incomes
|
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
|
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
|
Net Profit
|
xxx
|
Problems:
1. Mallik, a businessman started his business on 1/1/2006 with an opening capital of Rs. 45,000.
On 1/07/2006 he invested Rs.15, 000 as additional capital. He used Rs.18, 000 for his personal use.
His financial position on 31/12/2006 was as follows,
Particulars
|
Amount in Rs.
|
Stock of goods
|
26,000
|
Sundry Debtors
|
16,000
|
Furniture
|
6,000
|
Cash at Bank
|
6,000
|
Cash In hand
|
600
|
Bills Receivable
|
4,600
|
Plant and Machinery
|
20,000
|
Sundry Creditors
|
16,000
|
Loan from Menaka
|
6,000
|
Adjustments:
a) Depreciate furniture by Rs.600
b) Depreciate Plant and Machinery by 10%
c) Outstanding rent Rs.1,000
d) Allow interest on capital at 5% p.a
Prepare statement of profit or loss and revised statement of affairs.
2. Mr. Vivek a retail trader has kept his books of accounts under single entry system. The following information is available from his books.
Particulars
|
1/1/2007
(Rs.)
|
31/12/2007
(Rs.)
|
Bank balance
|
15,000
|
---
|
Stock
|
20,000
|
30,000
|
Debtors
|
25,000
|
35,000
|
Creditors
|
30,000
|
40,000
|
Investments
|
10,000
|
20,000
|
Furniture
|
15,000
|
15,000
|
Building
|
40,000
|
40,000
|
Motor Vehicle (1/07/2007)
|
----
|
20,000
|
Bank O.D
|
----
|
10,000
|
During the year he withdrew Rs.15, 000 cash and goods worth Rs. 5,000 for his household purpose.
Adjustments:
a) Write off bad debts Rs.1,000 and maintain reserve for doubtful debts at 5% on debtors
b) Depreciate furniture and motor vehicle by 10%.
c) Appreciate building at 20%
d) Interest on overdraft outstanding Rs. 500
e) Allow interest on capital at 8% p.a
Prepare statement of affairs, profit or loss and revised statement of affairs.
3. Mr. Krishna a retailer kept his books of accounts under single entry system. The following information is available.
Particulars
|
1/1/2006
(Rs.)
|
31/12/2006
(Rs.)
|
Cash in hand
|
2,000
|
3,000
|
Cash at Bank
|
4,000
|
6,000
|
Stock
|
15,000
|
20,000
|
Debtors
|
18,000
|
21,000
|
Bills Receivable
|
5,000
|
15,000
|
Bills Payable
|
8,000
|
10,000
|
Creditors
|
12,000
|
8,000
|
Machinery
|
25,000
|
25,000
|
Building
|
30,000
|
30,000
|
Furniture
|
10,000
|
10,000
|
Motor Van (01/07/2006)
|
---
|
15,000
|
During the year he withdrew Rs.7, 000 for his personal use. On 30/06/06 he has introduced Rs. 9,000 as additional capital.
Adjustments:
a) Depreciate machinery, furniture and motor van by 10% p.a
b) Appreciate building by 5%
c) Allow interest on capital at 6% p.a
d) Write-off bad debts Rs.1,500 and maintain RBD at 5%
e) Prepaid rent Rs.800.
Prepare statement of affairs, profit or loss and revised statement of affairs.
4. Mr. Manu kept his books of accounts under single entry system. The following information is available.
Particulars
|
1-1-2005
(Rs.)
|
31-12-2005
(Rs.)
|
Cash at Bank
|
6,000
|
8,000
|
Bills receivable
|
3,000
|
4,000
|
Bills Payable
|
---
|
2,000
|
Debtors
|
20,000
|
25,500
|
Creditors
|
16,000
|
20,000
|
Furniture
|
10,000
|
10,000
|
Investments
|
---
|
4,000
|
Building
|
50,000
|
50,000
|
Stock
|
14,000
|
16,000
|
Motor Car (30/06/2005)
|
---
|
30,000
|
During the year, Manu withdrew Rs.5, 000 for personal use he also paid Rs.2, 000 as medical expenses for his son and introduced additional capital of Rs. 8,000
Adjustments:
a) Depreciate furniture and motor car at 10% p.a.
b) Appreciate building by 20%.
c) Of the debtors Rs.500 is irrecoverable and provide Reserve Bad Debts at 5% on debtors.
d) Rent due but not paid Rs.1, 000.
e) Interest due but not received Rs.400.
Prepare statement of affairs, profit or loss and revised statement of affairs.
5. Mr. Raju a retailer kept his books of accounts under single entry system. The following information is available.
Particulars
|
1/1/2008
(Rs.)
|
31/12/2008
(Rs.)
|
Cash balance
|
5,000
|
8,000
|
Stock
|
24,000
|
30,000
|
Bills Receivable
|
4,000
|
10,000
|
Debtors
|
20,000
|
28,500
|
Creditors
|
18,000
|
25,000
|
Motor Car (30/06/2008)
|
---
|
20,000
|
Buildings
|
50,000
|
50,000
|
Bank OD
|
5,000
|
---
|
Furniture
|
15,000
|
15,000
|
Investments
|
20,000
|
20,000
|
During the year, Raju withdrew Rs.12,000 in cash and goods worth Rs.8,000 for personal use. He introduced additional capital of Rs. 15,000 on 1/05/2008.
Adjustments:
a) Depreciate furniture and motor car at 10% p.a.
b) Appreciate building by 20%.
c) Write-off bad debts Rs.1,500 and maintain RBD at 5% on debtors.
d) Allow interest on opening capital at 8% p.a.
e) Rent due but not paid Rs.2,000.
Prepare statement of affairs, profit or loss and revised statement of affairs
