Accounting for incomplete records (single entry system)
What is single entry system?What is single entry system? Accounting for incomplete records
What is single entry system?Features of single entry system & Accounting for incomplete records
Concept
We have already studied the dual aspect concept of booking in which both the aspects of a transaction are recorded in different set of books or accounts. But in single entry system the double effect of every transaction is ignored. The accounts relating to debtors and cash are maintaine
When a transaction involves personal account and cash account, the two aspects are recorded. For example: Mr. Ram received rs. 10000 from shyam. Here, cash account is debited and sham's account credited in the books of ram. But, if the transaction takes place between cash account and normal or real account, only cash account is recorded. For example, paid Rs.4000 as salary. In this case, only account credited and salary account is ignored. Entry is passed for this loss. With the help of these examples, we can say that single entry system its he beginning form or the raw form of book keeping.
M.M. Choksi "it is incomplete, inaccurate, unscientific and unsystematic style of account keeping".
On the basis of the above definition, it can be concluded that single entry system is an incomplete and unscientific way of recording business transactions. It can be used by small shopkeepers or the businessman where transactions are few and uneconomical to maintain separate books of account.
Note: single entry system considers only the personal aspects of the transaction and ignores the impersonal aspect.
Features of single entry system
The important features of single entry system are as follow:
• Suitable for small business concern: the single entry system can be used where number of the transactions is limited.
• Maintained of personal accounts and cash book: persons and cash book are maintained under single entry system.
• Lack of uniformity: this system has not provided sufficient rules for maintaining records. It may differ from firm to firm according to their necessity and convenience. So, there is no uniformity in recording procedures of transactions.
• No way for checking arithmetic accuracy: after recording, we cannot take the help of trial balance for finding out the accuracy due to the ignorance of impersonal accounts. Trial balance cannot be prepared under single entry system because it ignores impersonal accounts.
Advantages
• Simplicity: in single entry system, dual aspect principle is not necessary to apply. It considers only personal account and cash summary so it quite simple.
• Economical: it is less costly and loss: the businessman can calculate the profit and loss easily by making comparison between beginning and ending balance of capital.
• Suitable for small business concern: being simple and encomium system of accounting, it is suitable to a small business concern with a limited number of financial transactions.
Disadvantages
• Incomplete, unscientific and Instamatic system: this method does not record all the financial transactions. Except cash and personal account. It does follow the scientific rules and regulations. So full information cannot be acquired.
• No possible of testing accuracy: it does not follow rules of double entry system due to which arithmetic accuracy of books of account cannot be checked.
• No possibility of calculating actual profit: this system does not maintain the nominal accounts due to which actual profit of two different dates.
• Does not show the financial position: this system does not consider the real accounts. So. It is not possible few find the financial position of the business.
• Possibility of committing frauds: in single entry system, all the information are not maintained and recorded. In such case, if anybody desires, he may hide some of the information and can commit fraud.
• Not acceptable for tax purposed: due to incomplete records the tax authority cannot rely on for assessing the proper amount of tax. So, it is unacceptable.
Calculation of profit and loss under single entry system
The following method can be used for calculating profit and loss under single entry system.
• Net worth method
• Conversion method
Net worth method
It is also called statement of affairs method or capital comparison method. According to this method, profit or loss of the business is calculated comparing the capital to two different dates.
Capital on 1st June 2000= Rs. 80000
Capital on 31 Dec. 2000= Rs. 100000
• Profit for the year 2000 = closing capital – opening capital = Rs.100000 – Rs.80000 = Rs. 20000
An additional to the comparing the capital of two dates, some other items are also there which are required to be adjusted. They are:
• Drawings: The amounts of drawing of two dates, some other items are also there which are required to be adjusted capital.
• Additional capital: additional capital introduced during the year should be reduce from the ending capital to find out adjusted capital.
• Interest on capital: interest on capital also should be deducted from adjustment capital.
Statement of affairs
Statement of affairs is just like a balance sheet which can be prepared in single entry system. The objective of preparing statement of affairs is not for find out or to determine the financial position of the business but is to find out capital of the concerned date. If opening capital is required to be ascertained then the statement of affairs of opening date is needed. Likewise, the statement of affairs of the closing date is to be prepared if closing capital is to be ascertained.
Preparation of statement of affairs
A statement of affairs can be prepared by following (adopting) the method which is used in the preparation of balance sheet. The main purpose of preparing statement of affairs is to find out then opening or closing capital. The excess amount of the assets side over the liability is taken as capital.
Treatments of adjustments in single entry system
If additional information or the adjustments are given: they are to be adjustment for calculating profit or loss the business. Mainly, adjustment capital and the drawing are to be adjustment in statement of profit or loss. Other additional information can be adjustment in closing statement of affairs or in the statement of profit or loss. We should remember that adjustment are to be adjustment only a time, either in statement of affairs or in statement of profit and loss.
it was helpful
ReplyDeleteInteresting blog...keep it up.
ReplyDeleteOur core values keep us pushing to deliver the best on time. Our clients are our motivation and giving them the best is our motive.- Variable Sets - Company Registration Consultants | GST Consultants | Accounting & Bookkeeping Services