SINGLE ENTRY SYSTEM OBJECTIVES

LESSON - 7
SINGLE ENTRY SYSTEM
OBJECTIVES
After going through this chapter you should be able to
• Explain the Single Entry System
• understand the difference between Double Entry and Single Entry System
• know the two methods of ascertaining profits
• explain the method of preparation of statement of affairs to find out capitals.
Find out profit or loss when Single Entry records are converted into Double Entry.

STRUCTURE
7.1 Introduction and Definition
7.2 Ascertainment of Profit
7.2.1 Network method
7.2.2 Steps to be followed for ascertaining profit or loss under network method
7.2.3 Conversion method
7.2.4 Steps to be followed for Conversion of incomplete records
Unit Questions

7.1 Introduction
Business people, without systematic accounting knowledge, like small traders, medical practitioners and other professionals follow this method. Single entry does not mean that there is only one entry for each transaction. In fact, single entry is a combination of (a)Double entry for some transactions like cash colleted from debtors (b) single entry for transactions like cash sales and (c) No entry for transactions like depreciation.
In pure single entry . only personal accounts a recorded in simple single entry, personal accounts and cash account are maintained. In quasi single entry, personal accounts, cash account and some subsidiary books are maintained. Thus ,single entry refers to crude accounting methods which do not record nominal accounts and most of the real accounts.

Definition
According to R,N,Carter, “Signle entry cannot be termed as as a system, as it is not based on any scientific system, like double entry system. For this purpose, single entry is not-a – days known as preparation of account from incomplete records”.

Difference between Double Entry and Single Entry systems:
Sl.No Basis of Difference Double entry System Single entry system
1. Recording of transaction Both aspects of all transactions are recorded In some cases, both aspects, in some others a single aspect or no aspect is recorded.
2. Opening of Accounts All personal, real and nominal accounts are opened. Only personal accounts and cash account are opened.
3. Preparation of Trial Balance Trial Balance can be prepared Trial Balance cannot be prepared
4. Ascertaining profit or loss Account profit or loss can be found, through trading and profit and loss A/c Profit or loss cannot be found normally, in the absence or Trading and Profit and loss A/c
5. Revealing Financial Position Reliable Financial position can be found through Balance Sheet Balance sheet cannot be prepared. So financial position is difficult to ascertain.
6. Acceptability Acceptable for Income tax and other tax purposes, for raising of bank loans etc. Not acceptable for taxation claims, raising of loans.
7. Acceptable Evidence In case of disputes, accounting records can be produced in courts of law. The Accounting records are not acceptable evidence.
8. Utility Suitable for any type of business of any size It can be followed by small business men who can exercise personal control over the business.
9. Internal Check Internal check is possible Internal check is not possible

7.2 Ascertainment of Profit
When business records are incomplete, profit or loss can be found through any one of the following two methods.
(1) Net worth Method(Statement of affairs method)
(2) Conversion Method.
7.2.1 Net Worth Method
This method is also called Statement of Affairs method because ‘Net worth’ is ascertained with the help of statement of affairs.
(i) Net worth is the owners’ share of the assets, after providing for outside liabilities.
(ii) Difference between net worth at the beginning of the year and at the end of the year represents profit or loss for the year because owner, worth or share in assets increases or decreases due to profit or loss respectively
(iii) Before ascertaining the change in net worth which is the profit or loss, adjustment must be made for any drawings by the owner or additional capital contributed by him.
7.2.2 Steps are to be followed for ascertaining profit or loss under net worth method
Step (i): Calculating Opening Capital
Opening capital can be found by preparing a statement of affairs at the beginning of the year. A statement of affairs is just like a balance sheet. Assets are shown on the right hand side and liabilities are shown on the left hand side or the statement of affairs. The difference between both the sides represents ‘opening capital’
Since full records are not maintained by the business, the assets and liabilities are ascertained as follows:
(a) Cash can be physically counted.
(b) Bank balance is obtained from the pass book.
(c) Stock is recorded through physical stock taking.
(d) Debtors and creditors are usually available from the list
maintained by the business.
(e) Other assets can be listed out after an approximate
valuation by the owners.
(f) Any other relevant date like outstanding expenses, accrued income should be listed out from the owners’ memory.
Step (ii) : Ascertainment of Drawings during the year
This is a difficult task in most of the cases because cash book may show a part of the withdrawals only. Money may be used for personal purposes out of sale proceeds and the balance only may be recorded in cash book or deposited in the bank. Still, the owners, personal estimate may help in arriving at the rough amount of the drawings.

Step (iii): Ascertaining Capital introduced during the year
Additional capital provided by the owner during the year may be in cash or in the form of assets or goods . The total amount must be recorded in whatever form it was brought in.

Step(iv) Computing Closings Capital
Closing capital can be found by preparing a statement of a fairs at the end of the year, in the same way as opening statement was prepared. However, all adjustments relating to depreciation, provision for doubtful debts etc., must be made in the closing statement of affairs which were not necessary in the opening statement.

Step(v): Preparing Statement of Profit
Statement of profit is prepared as follows:
Statement of Profit or Loss for the year….
Closing Capital xxxx
Add: Drawings xxxx
---------
xxxx
Less: Additional Capital introduced xxx
Less: Opening Capital xxx xxxx
----- ----------
Net Profit/loss for the year xxxx

7.2.3 Conversion Method
Meaning: The process of collecting computing and recording missing information along with the available data in the incomplete books of a business is called ‘Conversion method’ Once the books are ‘converted.’ all future transactions can be recorded as per ‘double entry system’
Need for Conversion: The net worth method does not provide a clear picture of the operating results of a business. It does not show sales, purchases, gross profit, operating expenses etc. So it is not possible to make a meaningful analysis of the financial statements and initiate effective steps to improve the financial position of the business.
Conversion to double entry system enables a business to avoid the harassment of taxation authorities and ensures better management of the business.
The following are the steps to be followed for Conversion of incomplete records as per the requirements of Double entry system.
Step 1 : Statement of affairs at the beginning of the year from which conversion is to be effected should be prepared. The balance in the statement represents opening capital.
In problems, it may not be possible to complete the statement due to missing opening balances like Debtors, Creditors, Stock. The statement should be prepared to the extent possible and can be completed at a later stage.
Step 2: Cash book with Cash and Bank columns or s a single column should be prepared. Careful security of bank pass book and enquiry relating to cash ‘takings’ used by the owner for personal expenses and payments are essential.
In problems, opening or closing cash or bank balances may be missing. The balance in the cash book represents the missing figure. Cash book must be prepared even when the opening and closing balances of cash and bank are given. Any shortage on the debit side can be cash sales or additional capital introduced . Shortage on the credit side can be cash purchases or drawings or sundry expenses.
Step 3: Bills receivables account, bills payable account, total debtors account and total creditors account must be prepared. Preparation of these accounts can help in finding any missing items like opening or closing debtors, opening or closing creditors, credit purchases and sales etc.
Total sales and total purchases can be found by adding cash and credit sales and also cash and credit purchases.
If opening or closing stock is missing, preparation of memorandum trading account after ascertaining gross profit ration can reveal the opening or closing stock whichever is not given.
Step 4 : The opening statement of affairs can not be completed by filling up any missing figure and opening capital can be ascertained.
Step 5: Appropriate journal entry should be passed in respect of assets and liabilities included in the opening statement of affairs.
Step 6: Real and nominal accounts must be written from the information recorded in the cash book, total debtors account, total creditors account, etc. The double effect of every entry must be posted to the ledge, opening new accounts wherever necessary.
Step 7: All the accounts in the ledger must be balanced now and a trial balance should be extracted.
Step 8 : From the trial balance and nay other additional details , trading account, profit and loss account and balance sheet must be prepared.
Find Accounts Item Where to find out
(1)trading account (debit side) (i)Opening stock

(ii) Purchases
(a) cash purchases

(b) credit purchases


(iii)direct expenses
such as wages, freight, carriage ,octrol , fuel & power etc. Opening statement of affairs

Payment side of cash book


(a) total creditors account or
(b) other information
Payment side of cash book and or adjustmentstotal creditors account or

(2) trading account (credit side) (i)Sales
(a)Cash sales
(b)Credit sales

(ii) Closing Stock
(a)Receipt side of cash book
(b)Total debtors A/c or other
Information

Closing balances or other
Information
(3) profit & loss account (debit side) (i) indirect expenses such as administrative expenses, selling expenses, distribution expenses
Payments side of cash book /or adjustment and from other information.


(ii) Expenses relating to debtors such as bad debts, discount allowed etc. Total debtors account and /or other information.

(iii) Depreciation Comparison of opening & closing value of assets or Rate
Of depreciation given in the adjustments
4. Profit & Loss Account (credit side) Gross profit
Income received
Income Receivable From Trading A/c
Receipt side of cash book
From Adjustments.
5. Balance sheet (Assets) Cash in hand and bank balance.


Sundry debtors & Bills receivable
From receipts side of cash book or opening statement of affairs.

By preparing debtors A/c and bills receivable A/c or from closing balances given or other information

Find Accounts Item Where to find out

Fixed assets such as Land buildings , Machinery etc.
Any additions to fixed assets

Any additions to fixed assets

Other assets From opening statement of affairs

Payment side of cash book.


Payments side of cash book


From closing balances given or other information
6. Balance Sheet (Capital)
(i) Opening capital


(ii) Additional Capital

(iii) Net profit or Net loss

Drawings (to be deducted from capital) From closing balances given or other information

From receipt side of cash book.

From Profit & Loss A/c

Payment side of cash book

7. Balance sheet (Liability)
Bank overdraft

Sundry creditors & bills payable



Outstanding creditors Cash book

By preparing creditors A/c and Bills payable A/c or from closing balances given or other information

From opening statement of affairs and from other adjustments

Calculation of missing figures by preparing necessary Ledger Accounts.
(i) Finding out Credit Sales or Closing Debtors – A total Debtors account is to be prepared to find out either missing credit sales or closing balance of debtors (Sometimes cash received from debtors or Opening balance of debtors also ) in the following manner.

Proforma of a Total Debtors A/c
Rs.
To Balances b/d (opening balance)

To Bills receivable (dishonored)

To Freight (Charged)

To Interest on overdue A/c

To Cash (refund for return)

To Credit sales if given (if not given, balancing figure is credit sales)



Xxx


Xxx


Xxx

Xxx

Xxx

xxx






xxx
Rs.
By Cash received (either given or balancing figure)

By bank

By Bills receivable

By Discounts

By Return inwards

By Bad debts

By Transfer to Creditors

By Balance c/d (closing balance ) (either given or balancing figure

Xxx

Xxx

Xxx
Xxx

Xxx

Xxx

Xxx

xxx



xxx

xxx

(ii) Finding out credit purchases or closing creditors :- A Total Creditors Account is to be prepared to find out either missing credit purchases or closing balance of creditors(Sometimes cash paid to creditors also) in the following manner.
Proforma of a Total Creditors A/c

Rs.
To Cash (either given or balancing figure)

To Bank


To Bills payable

To Returns outwards

To Discounts received

To Allowances & rebates

To Transfer from debtors


To Balance c/d (closing balance either given or balancing figure) Xxx


Xxx


Xxx

Xxx

Xxx

xxx





xxx

xxx
Rs.
By Balance b/d(Opening balance)

By Cash (refund for returns etc)

By bills payable dishonoured

By Credit purchases (either given or balancing figure)


Xxx


Xxx


Xxx


Xxx










xxx

(iii) Finding out Bills Receivable :- A bills Receivable Account is to be prepared to ascertain either missing opening or closing balance of bills receivable (sometimes bills receivable received from debtors also ) in the following manner.)


Proforma of a Bills Receivable A/c
Rs.

To Balance b/d (Opening balance ) (either given or balancing figure)

To Sundry debtors (B/R received during the year )(either given or Balancing figure)
Xxx


Xxx






xxx
Rs.

By Cash presentation of bills

By Sundry debtors (B/R dishonored)

By Balance c/d (closing balance )(either given or balancing figure)



xxx

xxx


xxx



xxx

(iv) Finding Out Bills Payable – A Bills payable Account is to be prepared to ascertain either missing opening or closing balance of bills payable (sometimes Bills payable accepted also) in the following manner.
Proforma of a Bills Payable A/c
Rs.

To Cash

To Sundry creditors (B/P dishonored)


To Balance c/d (closing )
(either given or balancing figure)
xxx


xxx


xxx




xxx
Rs.

By Balance b/d (Opeing either given or balancing figure)

By Sundry creditors (Bills accepted )(either given or balancing figure)

By Balance c/d (closing balance )(either given or balancing figure)

xxx

xxx





xxx

(v) Finding out opening capital: An opening statement of affairs should be prepared to ascertain opening balance of capital, without which closing balance sheet cannot prepaid.

(vi) Finding out cash and bank balance - A cash book should be prepared (in columnar form if necessary) to ascertain either opening or closing balances of cash and bank. The cash book should be prepared scrutinized thoroughly even if the opening and closing balances are given in order to find out missing figures . Such missing items can be anyone of the following items. i.e cash sales, sundry income or capital introduced (if debit side of cash book is shorter than credit side)
(or)
Cash purchase , drawings, sundry expenses or cash missing (if credit side of cash book is shorter than debit side)
Combined cash and bank closing balance may be given in some problems. In such cases, either bank balance or cash balance should be found separately in another way (for which information is available). Then from combined balance the cash or bank balance found out should be reduced to find the remaining balance.
Net worth (or) Statement of affairs Method
Example –1.
Mr. Mano keeps his books of account under single entry system . His financial position on 31.12.90 and 31.12.91 was as follows:
1990
Rs. 1991
Rs.
Cash 9,860 800
Stock in trade 38,520 57,020
Plant & Machinery 54,420 61,000
Bills receivable --- 16,480
Sundry Debtors 24,840 43,940
Sundry Creditors 72,040 80,000
Furniture 4,960 5,220
Drawings -- 5,000
During the year he introduced additional capital of Rs.20,000.
From the above particulars prepare a statement of Profit and Loss of Mr.Mano for the year ended 31.12.91.

Solution :
Calculation of capital at the Beginning

Statement of affairs of Mano as on 31.12.90.

Liabilities Amount
Rs. Assets Amount
Rs.
Sundry creditors Capital (Bal.fig) 72,040
60,560





1,32,600
Cash
Stock in Trade
Plant & Machinery
Sundry Debtors
Furniture



9,860
38,520
54,420
24,840
4,900


1,32,600

Calculation of Capital at the end
Statement of affairs or Mano as on 31.12.91

Liabilities Amount
Rs. Assets Amount
Rs.
Sundry Creditors Capital (bal.fig) 80,000
1,04,460






1,84,460 Cash
Stock in Trade
Plant & Machinery
Sundry Debtors
Furniture
Bills receivable



800
57,020
61,000
43,940
5,220
16,480


1,84,460


Statement of profit /loss for the year ended 31.12.91
Rs.
Closing Capital 1,04,460
Add. Drawings 5,000
------------
1,09,460
Less: Additional Capital 20,000
-----------
89,460
Less: Opening Capital 60,560
-----------
Profit made during the year 28,900
------------
Comparison method
Find out purchases and sales from the following details by making necessary accounts:
Rs.
Opening balance of debtors 30,000
Opening balance of creditors 10,000
Collections from debtors 1,60,000
Discount received 2,500
Bad debts 1,000
Payment to creditors 14,000
Discount allowed 1,500
Returns inwards 2,000 R
Returns outwards 3,000
Cash purchases 6,000
Cash sales 10,000
Closing balance of debtors 35,000
Closing balance of creditors 15,000
Solution:
(i) calculation of credit sales.

To Balance b/d
To Sales – credit
Balancing figure
Rs
30,000
1,65,500



1,99,500
By Cash
By Bad debts
By Discount allowed
By Return inwards
By Balance c/d Rs.
1,60,000
1,000
1,500
2,000
35,000
1,99,500

(ii) Calculation of credit purchases
Total creditors A/c

To Cash
To Discount received
To Return outwards
To Balance c/d Rs.
14,000
2,500
3,000
15,000

34,500
By Balance b/d
By Purchases –credit (bal.fig) Rs.
10,000
24,500



34,500

Total purchase :-
Cash 6,000
Credit 24,500 30,500
----------
Total Sales: -
Cash 10,000
Credit 1,65,500 1,79,500
--------------
Example :
From the following details find out the credit purchases and total purchases
Rs. Rs.
Cash purchases 29,000 Bill payable paid during the year 10,500
Bills payable (opening) 7,500 Purchase returns 1,500
Bills payable(closing) 2,500 Allowances from creditors 800
Creditors(opening) 20,000 Bills payable dishonoured 300
Creditors(Closing) 18,000
Cash paid to creditors 25,000
Solution
Bills Payable A/c

To Creditor A/c (B/p dishonoured
To Cash
To Balance c/d Rs.
300

10,500
2,500

13,300
By Balance b/d
By Sundry Creditors
(Acceptance given (bal.fig)
during the year) (tranfer) Rs.
7,500
5,800



13,300
Total Creditors A/c

To Bills Payable
To Cash
To Purchase returns
To Allowances
To balance c/d Rs.
5,800
25,000
1,500
800
18,000
51,100

By Balance b/d
By B/p A/c (dishonoured)
By Purchases (credit) (bal.fig)
Rs.
20,000
300
30,800


51,100


Credit purchases Rs. 30,800
Total purchase = Credit purchases + Cash purchases
= 30,800 + 29,000 =Rs.59,800.
Example:
From the following information , you are required to calculate total sales.
Rs. Rs.
Bill Receivable in the Bad debts written off 2,800
Beginning 7,800 Returns inwards 8,700
Debtors in the beginning 30,800 Bill Receivable at the end 6,000
Bills Receiving Debtors at the end 25,500
Encased during the year 20,900 Cash sales (as per cashbook) 40,900
Cash received from Debtors70,000 Bills Receivable dishonoured 1,800
Solution :
Bills Receivable A/c

To Balance b/d
To Sundry Debtors A/c
B/R received during the year
(bal.fig) Rs.
7,800
20,900



28,700
By Cash
By Debtors A/c (B/R dishonoured)
By Balance c/d
Rs.
20,900
1,800
6,000


28,700

Total Debtors A/c

To Balance b/d
To B/R (dishonoured)
To Sales (credit)(bal.fig) Rs.
30,800
1,800
95,300




1,27,900
By Cash
By bad debts
By returns Inwards
By Bills Receivable
By Balance c/d Rs.
70,000
2,800
8,700
20,900
25,500


1,27,900
Total sales = cash sales + credit sales
= 40,900 + 95,300
= Rs. 1,36,200.

Example
Mr . X keeps his books under single entry system. From the following , prepare Trading and P & L A/c and Balance Sheet as on 31.3.94.
Cash book analysis shows the following:
Interest Charges 100
Presonal Withdrawals 2,000
Staff salaries 8,500
Other business expenses 7,500
Payment to creditors 15,000
Balance at bank as on 31.3.04 425
Cash in hand as on 31.3.94 75
Received from Debtors 25,000
Cash Sales 15,000
Further details available are:
As on 31.3.93 (Rs.) As on 31.3.94 (Rs.)
Stock on hand 9,000 10,220
Creditors 8,000 5,500
Debtors 22,000 30,000
Furniture 1,000 1,000
Office premises 15,000 15,000

Provide 5% Interest on X’s balance as on 1-4-93 . Provide Rs.1,500 for doubtful debt, 5% depreciation on all fixed assets. 5% group incentive commission to staff has to be provided for on net profit after meeting all expenses and the commission.
Solution
Trading and P & L A/c of Mr.X for the year ended 31.3.94.
Rs. Rs.
To Opening Stock
To Purchase
To Gross Profit c/d



To Depreciation on furniture on office Premium
To Int.on Capital (32,600x5%)
To Interest charges
To Staff Salaries
To Other business expenses
To Provision for doubtful debts
To Group incentive commission to staff
(16,690 x5/105)
To Net Profit
(transferred to capital A/c) 9,000
12,500
36,720

58,220

50
750

100
8,500
7,500
1,500

795


15,895


36,720 By sales Cash 15,000
Credit 33,000
By Closing stock



By Gross Profit b/d
48,000
10,220

58,220

36,720













36,720
BALANCE SHEET OF Mr.X as on 31.3.1994

Liabilities Rs. Rs. Assets Rs.
Creditors
Group Incentive
Commission to Staff payable
Capital
Add. Net Profit


Add. Interest on capital

Less. Drawings



32,600
15,895

48,495
1,630
50,125
2,000

5,500


795






48,125

54,420 Bank balance
Cash in hand
Stock
Debtors 30,000
Less. 5% provision 1,500
Furniture 1,000
Less 5% Depreciation 50
Office Premises 15,000
Less. 5% Depreciation 750 425
75
10,220

28,500

950

14,250



54,420
Working Notes:
Calculation of cash at the beginning
Cash Book
Rs. Rs.
To Debtors
To Sales 25,000
15,000







40,000 By Balance b/d (bal.fig)
By Interest Charges
By Drawings
By Staff Salary
By other Business expenses
By Creditors
By Balance c/d bank
Cash in hand 6,400
100
2,000
8,500
7,500
15,000
425
75

40,000

Calculation of Credit Sales
Total Debtors A/c

To Balance b/d
To Sales (credit) (bal.fig) Rs.
22,000
33,000

35,000
By Cash
By Balance c/d Rs.
25,000
30,000

35,000

Calculation of Credit Purchases
Total Creditors A/c

To Cash
To Balance c/d Rs.
15,000
5,500

20,500
By Balance b/d
By Purchase (Credit ) (Bal.fig) Rs.
8,000
12,500

20,500

Calculation of capital at the beinning
Statement of affairs as on 31.3.93.
Liability Rs. Assets Rs.
Bank O/d (as per cash book)
Creditors
Capital (bal. Fig) 6,400
8,000
32,600

47,000
Stock in hand
Debtors
Furniture
Office premises 9,000
22,000
1,000
15,000
47,000


Unit Questions.
1. What is single entry? What are its limitations?
2. Explain single entry system. How does it differ from double entry system?
3. Explain the meaning and differences between balance sheet and statement of affairs.
4. State the features and defects of single entry system.
5. Mention the procedure for calculating profit
6. Mr. Rafi maintains his books on single entry system. He gives you the following information:
Rs.
Capital as on 1.1.92 32,000
Capital as on 1.1.93 36,000
Drawings during the year 1992 10,000
Capital Introduced on Aug.1992 6,000
You are required to calculate profit
made by Rafi during 1992.

7. Amitabh keeps his books under single entry system. Assets and liabilities on 31.12.93. and 31.12.94 stood as follows:
8.
31.12.93
Rs. 31.12.94
Rs.
Cash
Bank balance
Stock
Sundry Debtors
Furniture
Sundry Creditors 10
990
7,000
15,000
3,000
3,000 2,000
10,000
10,000
20,000
3,000
6,000

He introduced as additional capital of Rs. 3,000 during 1994. His withdrew Rs.7,000 for his domestic purpose . Find out the profit for 1994.
From the following details, calculate total sales made during the year 1994.
Rs.
Debtors(1.1.94) 17,425
Debtors(31.12.94) 15,300
Cash received from debtors 49,200
Sales returns 3,700
Bad debts 2,500
Discounts 1,800
Bills receivable 5,000
Cash sales 12,000


8. Thiru.Murugan kepts his books under single entry system. On 1.1.82 his capital was Rs.69,000. An analysis of his cash book for the year gives the following particulars.

Dr side Cr.side

Received from Mrs.
Paid on Capital a/c Rs.
60,000
5,000





65,000
Due to Bank (1.1.82)
Payment to Crs
General expenses
Wages
Drawings
Balance at Bank
Balance on hand Rs.
7,400
25,000
10,000
15,500
3,000
4,000
100
65,000

The following were his assets and Liabilites
Rs. Rs.
1.1.82 31.12.82
Debrors 53,000 88,0000
Creditors 15,000 19,500
Stock 17,000 19,000
Plant 20,000 20,000
Furniture 1,400 1,400
From the above particulars prepare Trading and Profit and Loss account on 31.12.1982 after providing interest in capital at 5% , depreciation on furniture at 5% depreciation on plant at 10% a reserve of 5% on debtors.

9. From the following details , prepare trading and profit and Loss and balance sheet.
As on 1.1.95 As on 31.12.95 Rs. Rs.
Creditor 37,500 43,750
Furniture 2,500 2,500
Cash 6,250 10,000
Debtors 62,500 87,500
Stock 25,000 12,500
Others details :

Drawings Rs.10,000 Badbebts Rs.1250 ; Discount received Rs.2,500; Sundry expenses Rs.7500; Payment to creditors Rs,1,12,500, collection from debtors Rs. 1,33,750 Sales Returens Rs.3750; Purchase returns Rs.1250; charge 5% depreciatin on furniture.

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