Account 1 Marks Question

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

1. Statement of Affairs Method.
2. Conversion Method.

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

It is an easy and simple method of recording business transactions because it does not require any special knowledge of the principles of double entry system.

Common objective of the two systems is to ascertain the net profit or loss of the business for a particular period.

No. A limited company cannot maintain its accounts under single entry system due to legal restrictions.

Dual Aspect Concept.

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

Drawings are added to the closing capital on the logic that if the drawings had not been made, closing capital would have been higher by this amount.

1. Maintenance of Personal Account only.
2. Maintenance of Cash Book.

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.

The method does not record both the aspects of a transaction. As such, a trial balance cannot be prepared to check the arithmetical accuracy of the books of accounts.

Ascertainment of Profit or Loss from Incomplete Records
Despite the records being incomplete, the businessman would like to know the trading results as also the financial position of his business at the end of a particular period. This is done by adopting one of the two methods mentioned below:

1. Statement of Affairs Method

According to this method, the profits are ascertained by comparing the capital at the end and capital at the beginning of the accounting period. If the capital at the end of an accounting period is more than that at the beginning (with the necessary adjustments), the difference is treated as profit. If, on the other hand, the capital at the end is less than that of beginning, the difference is treated as a loss.

2. Conversion into Double Entry Method

Or

Preparation of Trading and Profit & Loss A/c and Balance Sheet

If a businessman who keeps incomplete records, wants to ascertain the profit or loss by preparing Trading and Profit & Loss Account, it is essential for him to convert his incomplete records into Double Entry records. Following steps are necessary for such conversion:

1. Opening Statement of Affairs: First of all, a statement of affairs at the beginning should be prepared to calculate the capital at beginning of the year and the accounts for all items appearing in statement of affairs are opened in the ledger through "opening entries in the Journal.
2. Cash Book: As a second step, a Cash Book should be prepared and all accounts whether Personal, Real or Nominal, appearing either on the debit side or on the credit side of the Cash Book are opened in the ledger and posting is made in these accounts.
3. Subsidiary Books: After this, the subsidiary books should be checked and their totals should be posted to their respective Accounts. Also, the necessary posting should be made in Personal Accounts with the help of subsidiary books.
4. Other Accounts: There may be certain other transactions too, of which no record is kept in the books. All such transactions must be journalised and posted.
5. Final Accounts: Lastly, a Trial Balance is prepared with the help of ledger balances and Trading and Profit & Loss A/c and Balance Sheet are prepared on the basis of it.

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

Money Measurement concept.

It is an accounting system which ignores two-fold aspects of a transaction.

1. Personal Account.
2. Cash Account.

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

Big business houses not maintain their accounts under single entry system because:

1. Financial Position of the Business cannot be Assessed: In the absence of assets accounts, it is difficult to determine correct financial position of the business on any particular day by preparing a Balance Sheet.
2. Difficult to Ascertain the Value of Business: The records being inadequate, it is difficult to value the business, especially goodwill.

S.No.	Basis of Difference	Double Entry System	Incomplete Records
1.	Recording of both aspects	Both the aspects of every transaction are recorded in it.	Under this system, both the transaction are recorded in it. aspects of very few transactions are recorded. For some other transactions one aspect and yet for others no aspect at all is recorded.
2.	Type of Accounts	All accounts - personal, real and nominal are maintained under it.	Only personal accounts and a and nominal are maintained cash book are maintained under under it.

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Payment to creditors and collection from debtors: Payment to the creditors are ascertained from the Total Creditors Account as a balancing figure and collection from debtors are ascertained from the Total Debtors Account as a balancing figure.

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

1. Because a statement of affairs is not prepared with the list of ledger balances kept on the basis of double entry system.
2. Value of assets and liabilities shown in statement of affairs are only the estimates and not the actual values.

1. Less expensive.
2. Less time consuming.

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

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

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1. True profit or Loss cannot be ascertained.
2. Balance Sheet does not disclose true financial position.

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.

Closing balance of cash: Closing balance of cash is ascertained from the Cash Book, which shows all receipts in the debit side and all payments in the credit side during an accounting year and the balancing figure of the cash book is the closing balance of cash.

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