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Accounts of Incomplete Records or Single Entry System Accountancy

Accounts of Incomplete Records or Single Entry System


Single Entry 1. 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. 2. 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 1. Incomplete System In this system only one aspect of the transaction is recorded. 2. Absence of Uniformity This method is followed differently in different businesses as there is no set of guiding principles. 3. Absence of Universal Suitability This system is not suitable for medium and large sized businesses. 4. Inexpensive System It does not involve much of expenditure. 5. Basis of Recording The purpose of recording depends on documents as well as the memory of the businessmen. 6. Easy Understandability It does not involve comprehensive system of principles. It is easily understood. Types of Single Entry 1. Pure Single Entry The transactions are recorded only in personal accounts. 2. Simple Single Entry System Cash book and personal accounts are maintained under this method. 3. 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 Basic principle Nature of recording Nature of a/c covered Check of accuracy Final Double Entry Both the aspects of transactions i.e. or Dr. and Cr. will be recorded immediately. Scientific, methodical, systematic and complete. Real, personal and nominal. Can be done, as a trial balance can be prepared. Can be prepared systematically and Single Entry Both the aspects and even one aspect may not be recorded. Incomplete and haphazard. Generally personal, at times real and rarely nominal. Cannot be done as the trial balance cannot be prepared. No such a/c can be prepared and SBMJC JC II PU 1

Accountancy Accounts of Incomplete Records or Single Entry System profit and financial position can be accurately known by preparing trading, P&L, and Balance Sheet. Suitable for all kinds of businesses. profit and loss and financial position cannot be known. Suitable only to small sized businesses. Comparatively less expensive. Capital calculated is not as accurate as it is at the best balancing figure. This system is not reliable as double entry system because it is unscientific and incomplete. This system involves very few procedures and can be learnt easily.

accounts Suitability

Cost of Quite expensive as it involves maintenance procedures, books of a/c etc. The balance of capital can be Capital accurately calculated by capital a/c. Highly reliable as it is based on scientific principles. The books Degree of maintained under this are accepted as reliability evidence by the court of law and by the government authorities. Ease of It is an elaborate system of principle learning rules to maintain the books of a/c. Advantages of Single Entry System:

1. It is a simple method of recording business transactions because an elaborate 2.

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accounting procedure is not involved in this system. 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. 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. 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. 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. 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:

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Accounts of Incomplete Records or Single Entry System Accountancy


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 SBMJC JC II PU 3

Accountancy Accounts of Incomplete Records or Single Entry System Proforma of Statement of Affairs Statement of Affairs as on _______________ Liabilities Amount Assets Creditors xxx Building Bills Payable xxx Plant and Machinery Outstanding Salaries xxx Furniture Capital (Balancing Figure) xxx Investments Stock Debtors Cash in hand Bills receivables Total xxxx Total Amount xxx xxx xxx xxx xxx xxx xxx xxx xxxx

Statement of Profit or Loss Proforma of Statement of Profit or Loss Statement Profit or Loss as on __________________ Particulars ` ` Closing Capital xxx Add: Drawings (made during the year) xxx xxx Less: Additional Capital Introduced xxx Adjusted capital xxx Less: Opening Capital xxx Gross Profit xxx 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 Net Profit Problems: xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

xxx xxx

xxx xxx

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Accounts of Incomplete Records or Single Entry System Accountancy 1. Mallik, a businessman started his business on 1/1/2006 with an opening capital of ` 45,000. On 1/07/2006 he invested `15, 000 as additional capital. He used `18, 000 for his personal use. His financial position on 31/12/2006 was as follows, Particulars Amount in ` 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 `600 b) Depreciate Plant and Machinery by 10% c) Outstanding rent `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 31/12/2007 (`) (`) 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 `15, 000 cash and goods worth ` 5,000 for his household purpose. Adjustments: a) Write off bad debts `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 ` 500 SBMJC JC II PU 5

Accountancy Accounts of Incomplete Records or Single Entry System 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 31/12/2006 (`) (`) 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 `7, 000 for his personal use. On 30/06/06 he has introduced ` 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 `1,500 and maintain RBD at 5% e) Prepaid rent `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 31-12-2005 (`) (`) 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 `5, 000 for personal use he also paid `2, 000 as medical expenses for his son and introduced additional capital of ` 8,000 6 SBMJC JC II PU

Accounts of Incomplete Records or Single Entry System Accountancy Adjustments: a) Depreciate furniture and motor car at 10% p.a. b) Appreciate building by 20%. c) Of the debtors `500 is irrecoverable and provide Reserve Bad Debts at 5% on debtors. d) Rent due but not paid `1, 000. e) Interest due but not received `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 31/12/2008 (`) (`) 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 `12,000 in cash and goods worth `8,000 for personal use. He introduced additional capital of ` 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 `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 `2,000. Prepare statement of affairs, profit or loss and revised statement of affairs

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