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:

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.

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)

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:

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