Account 1 Marks Question

Opening Capital can be ascertained by preparing a Statement of Affairs in the beginning of the accounting period.

By preparing Total Creditors Account, credit purchases can be determined.

A Statement of Affairs is a statement of all assete and Liabilities. The difference between the amounts of two sides is taken as capital.

1. It does not reflect correct profit.
2. Balance Sheet does not reflect correct financial position.

Single Entry System of accounting is a system in which accounting records are not maintained according to Double Entry System of book keeping.

Closing Capital can be ascertained by preparing a Statement of Affairs at the end of the accounting period.

1. Cash Account.
2. Peresonal accounts of debtors/ creditors.

By preparing Total Debtors Account, credit sales can be calculated.

Rate of Gross Profit on Sale = 1/5
Rate of Gross Profit on Cost = 1/4
Gross Profit = ₹ 50,000 (1/4 of 2,00,000)
Sales = Cost of Goods Sold + Gross Profit
Sales = 2,00,000 + 50,000 = ₹ 2,50,000

Money Measurement Concept is followed and Dual Aspect Concept is ignored in Single Entry System of accounting.

When Double Entry System is not followed completely to prepare accounting books of a firm, it is called incomplete records or 'Single Entry System'.

Rate of Gross Profit on Cost = 1/4
Rate of Gross Profit on Sale = 1/5
Gross Profit = ₹ 24,000 (1/5 of 1,20,000)
Cost of Goods Sold = Net Sales - Gross Profit
Cost of Goods Sold = 1,20,000 - 24,000 = ₹ 96,000
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - Closing Stock
96,000 = 16,000 + 93,000 + 20,000 - Closing Stock
Closing Stock = ₹ 33,000

Credit Sales = Cash Received + Discount Allowed + Closing Debtors - Opening Debtors
= 7,50,000 + ₹ 50,000 + 3,00,000 - ₹ 2,50,000 = ₹ 8,50,000.

Common objective between the two systems is to determine the financial performance of the business.

Closing Capital = Opening Capital + Profit + Additional Capital Introduced - Drawings

Total Purchases = Credit Purchases + Cash Purchases
= (₹ 50,000 + ₹ 60,000 - ₹ 30,000) + ₹ 20,000 = ₹ 1,00,000.

1. This system is suitable for sole traders or partnership firm doing small scale business.
2. There is no uniformity as this system differs from firm to firm.

Cost of Goods Sold = Opening Stock + Purchases - Closing Stock
65,000 = 4,000 + Purchases - 5,000
Purchases = ₹ 66,000

A limited company cannot maintain its accounts under this system because the Companies Act, 2013 requires companies to follow accrual basis of accounts.