Single Entry System: Revision Notes for S2 B Com Financial Accounting

UNIVERSITY OF CALICUT | SECOND SEM BCOM – FINANCIAL ACCOUNTING

REVISION NOTES FOR 2019 ADMISSION STUDENTS | MODULE I: SINGLE ENTRY SYSTEM / ACCOUNTING FROM INCOMPLETE RECORDS

Meaning

The term “Single Entry System” is popularly used to describe the problems of accounts from incomplete records.

Features

It is an inaccurate, unscientific and unsystematic method of recording business transactions.

There is generally no record of real and personal accounts and, in most of the cases; a record is kept for cash transactions and personal accounts.

There is no uniformity in maintaining the records and the system may differ from firm to firm depending on the requirements and convenience of each firm.

Profit under this system is only an estimate and therefore true and correct profits cannot be determined.

Ascertainment of Profit by Capital Comparison

This method is also known as Net Worth method or Statement of Affairs Method.

Closing Capital – Opening Capital = Profit

Capital is increased if there is profit, while capital is reduced if there is loss. While determining the profit by capital comparison, the following rules should be followed.

Capital at the end (a)                                       ***

Add: Drawings                                                   ***

Less: Fresh capital introduced                         ***

Capital at the beginning (b)                           ***

Profit (a-b)                                                         ***

It is clear from the above discussion that to follow the capital comparison method one should know

the opening capital and closing capital. This should be determined by preparing statement of affairs

at the two respective points of time. Capital always equals assets minus liabilities.

Difference b/w statement of affairs and balance sheet

Basis	Statement of affairs	Balancesheet
Reliability	Less reliable because most of the assets are recorded on the basis of estimates, assumptions, information gathered from memory rather than records.	More reliable because It is based on transactions recorded strictly on the basis of double entry book keeping
Objective	The object of preparing this statement in the calculation of capital figures in the beginning and at the end of the accounting period respectively.	The object of preparing the balance sheet is to ascertain the financial position on a particular date.
Basis of Valuation	The valuation of assets is generally done in an arbitrary manner; therefore no method of valuation is disclosed.	The valuation of assets is done on scientific basis. Any change in the method of valuation is properly disclosed.

Ascertainment of Profit by Complete Accounting Information

Where the accounts of a business are incomplete, it is advisable to convert them first to the

double entry system by finding out the missing figures and then to draw up the Profit and Loss Account and the Balance Sheet, instead of determining the amount of profit/loss by preparing the statement of affairs. This method is also known as conversion method.

Model Questions

1. What is meant by single entry system?

2. Discuss characteristics of single entry system?

3. Explain different types of single entry system

4. Discuss profit determination under capital comparison method

5. What is meant by statement of affaires?

6. Distinguish statement of affairs and balance sheet

7. Explain profit determination under conversion method.