Account 1 Marks Question

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

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.

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.

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.

Money Measurement concept.

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

1. Personal Account.
2. Cash Account.

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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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.

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Solution is as follows:

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

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