Account 4 Marks Question

Prepare Total Creditors Account: Total Creditors Account is prepared in the same manner as Total Debtors Account to find the missing value (figure) of credit purchases or closing balance of creditors or cash paid to creditors or opening balance of creditors as given below:

Note: As per solution, the missing figure in the bills receivable account is B/R dishonoured of ₹ 40,000. The missing figure in the debtors account is the credit sales of ₹ 6,21,000, However, the NCERT book shows a credit sales ₹ 5,16,000.
In order to match our answer with that of the book, B/R received from the customers is not shown in the debtors account.

Characteristics of Single Entry System:

1. Suitability: This system is suitable for small-size businesses where the number of transactions is less.
2. No Uniformity: This system may differ from firm to firm as it is a mere adjustment of Double Entry System according to requirements and convenience.
3. Maintenance of Personal Accounts: Usually under this system, only personal accounts are maintained and real and nominal accounts are avoided. Therefore sometimes, it is defined as a system where only personal accounts are kept.
4. Maintenance of Cash Book: Generally, a Cash Book is maintained in this system which mixes up business as well as personal transactions.

Reasons:

1. Simple Method: Single Entry System is a simple method of recording business transactions.
2. Less Expensive: It is less expensive when it is compared to Double Entry System of book keeping.
3. Suitable for Small Businesses: It is mainly suited to small businesses with limited number of transactions and very few assets and liabilities.
4. No Need of Expert Knowledge of Principles of Book Keeping: Under Single Entry System, accounting records can be easily maintained as their maintenance does not require expert knowledge of the principles of book keeping.
5. Easy to Ascertain Profit or Loss: Ascertainment of profit or loss is much easier. To ascertain the profit or loss, the proprietor has to compare the financial condition of business at the close of the accounting period with that in the beginning.

Total Sales = Cash Sales + Credit Sales
Total Sales = 56,800 + 75,800 = ₹ 1,32,600

Capital on March 31, 2017 (Closing) is ₹ 20,000

Rate of Gross Profit (on cost) = 25%
Rate of Gross Profit (on sales) = 20%
Gross Profit = 20% of 1,00,000 = 20,000
Gross Profit = Net Sales - Cost of Goods Sold
20,000 = 1,00,000 - Cost of Goods Sold
Cost of Goods Sold = 1,00,000 - 20,000 = ₹ 80,000
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - Closing Stock
80,000 = 18,000 + 69,000 + 10,000 - Closing Stock
Closing Stock = 18,000 + 69,000 + 10,000 - 80,000 = ₹ 17,000

Working Note:
Calculation of additional capital introduced during the year
Value of Investments = 80,000
Loss = 80,000 × 5% = 4,000
Sale Value of Investments = ₹ 76,000(Aditional Capital)

Advantages of Single Entry System:

1. Simple Method: Single Entry System is a simple method of recording business transactions.
2. Less Expensive: It is less expensive when it is compared to Double Entry System of book keeping.
3. Suitable for Small Businesses: It is mainly suited to small businesses with limited number of transactions and very few assets and liabilities.
4. No Need of Expert Knowledge of Principles of Book Keeping: Under Single Entry System, accounting records can be easily maintained as their maintenance does not require expert knowledge of the principles of book keeping.
5. Easy to Ascertain Profit or Loss: Ascertainment of profit or loss is much easier. To ascertain the profit or loss, the proprietor has to compare the financial condition of business at the close of the accounting period with that in the beginning.

Prepare Total Debtors Account: Total Debtors Account is prepared to find the missing values (figures) of credit sales or the closing balance of debtors or cash received from the debtors or opening balance of debtors in the following manner:

The possible reasons for keeping incomplete records are:

1. Simple method: Proprietors, who do not have the proper knowledge of accounting principles, find it much convenient and easier to maintain their business records under this system.
2. Less time consuming: Maintaining books according to the single entry system is less time consuming, as only few books are to be maintained. Further, the books are not as comprehensive as they are under double entry system.
3. Less expensive: It is an economical mode of maintaining records, as there is no need to appoint specialised accountant.
4. Flexible: Owner may record transactions as per his/ her own needs. It can be easily adjusted or changed whenever needed.

Amount paid to Creditors is ₹ 4,40,175.

Opening capital and closing capital: Opening capital can be ascertained by preparing opening statement of affairs at the beginning of the accounting period and closing capital can be ascertained by preparing closing Statement of Affairs at the end of the accounting period.

When liabilities are more than assets, capital appears in assets side, as it is balancing figure.
When the assets’ balance exceeds liabilities’ balance, the balancing figure is denoted by capital in the Liabilities side of the Statement of Affairs.

Total Sales = Cash Sales + Credit Sales
Total Sales = 15,900 + 97,300 = ₹ 1,13,200

Total Purchases = Cash Purchases + Credit Purchases
Total Purchases = 25,800 + 40,300 = ₹ 66,100

Basis of Difference	Statement of Affairs	Balance Sheet
Objective	It is prepared to determine the amount of capital at a particular date.	It is prepared to ascertain the true financial position.
Reliability	It is based on estimates; hence, it is less reliable.	It is based on sophisticated and well developed principles; hence, it is more reliable.
Accounting Method	It is prepared from incomplete records of business transactions under single entry system.	It is prepared when accounts are maintained under double entry system.
Omission	Omission of assets and liabilities cannot be easily identified.	Omission of assets and liabilities can be easily identified, as omission will lead to mismatch of either sides of the balance sheet.

Rate of Gross Profit (on cost) = 50%
Rate of Gross Profit (on sales) = 33.33%
Gross Profit = 33.33% of (1,05,000) = 35,000
Gross Profit = Net Sales - Cost of Goods Sold
35,000 = 1,05,000 - Cost of Goods Sold
Cost of Goods Sold = 1,05,000 - 35,000 = ₹ 70,000
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - Closing Stock
70,000 = Opening Stock + 60,000 + 3,000 - 20,000
Opening Stock = 70,000 - 60,000 - 3,000 + 20,000 = ₹ 27,000

Features of Single Entry System:

1. Suitability: This system is suitable for small-size businesses where the number of transactions is less.
2. No Uniformity: This system may differ from firm to firm as it is a mere adjustment of Double Entry System according to requirements and convenience.
3. Maintenance of Personal Accounts: Usually under this system, only personal accounts are maintained and real and nominal accounts are avoided. Therefore sometimes, it is defined as a system where only personal accounts are kept.
4. Maintenance of Cash Book: Generally, a Cash Book is maintained in this system which mixes up business as well as personal transactions.
5. Dependence on Original Vouchers: Usually under this system, original vouchers are scrutinised for collection of information. For example, in case of credit sale, the owner may keep the invoice without recording it in accounting books and at the end of a particular period the total of the invoices gives credit sales of the business. Similarly, the amount of credit purchases may be determined on the basis of original invoices received from the suppliers.