single entry system or a

8/7/2019 SINGLE ENTRY SYSTEM OR A

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A/CS- SE Prepared By Sameer Wadhwa

SINGLE ENTRY SYSTEM OR A/Cs FROM INCOMPLETE RECORDS

Single Entry does not mean that there is only one entry for each transaction.In fact,

SE is a combination of

a) Double Entry for some transaction like cash collected from Drs.

b) Single Entry for transactions like cash sales.

c) No entry for transactions like depreciation.

Single Entry cannot be termed as a system, as it is not based on any scientific

system, like double entry system.For this purpose SE is now-a-days known as

preparation of A/C from incomplete records.

A system of book keeping in which as rule only records of cash and personal

A/Cs are maintained.It is always incomplete double entry, varying with the

circumstances.

Salient Features or Characteristics of SE

1) Absence of Uniformity It is not a specific system governed by definite rules

of operation.it is highly flexible according to the capabilities of individuals

maintaining the records.

2) Records Mantained Usually personal A/Cs are fully written and cash book

is also maintained.Nominal A/Cs and most of the real A/Cs are completely

omitted.3) Mixing of Transactions Business dealings as well as personal transactions

are mixed while writing the CB.

4) Suitability Sole Proprietors, Partnership Firms and Professionns use SES.

5) Dependence on Original Vouchers No entries are made for a large no of

transactions, for eg- Cr. purchases and sales ascertained from copies of

invoices.

6) Finalisation of A/Cs Regular Final A/Cs cannot be prepared.P & L can be

computed in a crude way, which is not reliable.

Disadvantages or Limitations of SE Systems1) Insufficient Records Impersonal A/Cs are left out.So, the A/Cs serve very

little purpose.

2) Absence of TB No verification of Arithmetical accuracy.

3) Difficulty in Ascertaining Profit

4) Difficulty in Ascertaining Financial Position B/S cannot be prepared.


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5) Lack of Statistical Data Statistical data relating to increase or decrease in

sales, purchases, different items of expenses, profitss etc, cannot be

obtained.6) Encouragement to Fraud

7) Rectification of Errors is Difficult No TB to detect mistakes.

8) Value of Business cannot be ascertained in absence of paper records.

9) Planning and Decision making are Difficult in the absence of reliable

information.

10)Difficulty in getting institutional loans

11)Filing tax returns, preparing claims etc Tax authorities may change tax

arbitarily in the absence of reliable records.Filing claims for loss of Stock

becomes difficult.

Ascertainment of Profits There are two methods

1) Networth Method (Statement of Affairs Method)

2) Conversion Method

1) Net Worth Method is also called Statement of Affairs Method because

Net Worth is ascertained with the help of Statement of affairs.

a) Net Worth is the owners share of the assets, after providing for outside

liabilities.

b) Difference between NW at the beginning of the year and at the end of

the year represents profit or loss.

c) Before ascertaining the change in NW which is the P or L, adjustment

must be made for any drawings by the owner or additional capital

introduced by him.

Following 5 steps are to be followed for ascertaining P or L under NW Method.

a) Calculating Opening Capital Opening capital can be found by preparing

a statement of affairs at the beginning of the year.It is just like a B/S.The

difference b/w both the sides represents Opening Capital.Since full records are not maintained by the business, the assets and

liabilities are ascertained as follows-

i) Cash can be physically counted.

ii) Bank balance is obtained from the PB.

iii) Stock is recorded through physical stock taking.


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iv) Drs and Crs are usually available from the list maintained by the

business.

v) Other assets can be listed out after an approximate valuation by theowners.

vi) Any other relevant date like O/S expenses, accrued income should be

listed out from the owners memory.

b) Ascertainment of Drawings during the Year is a difficult task in most

of the cases because CB may show a part of the withdrawls only.Money

may be used for personal purposes out of sale proceeds and the baalance

only may be recorded in CB or deposited in the bank.Still, the owners

personal estimate may help in arriving at the rough amount of the

drawings.

c) Ascertaining the owners capital - during the year may be in cash or in

the form of assets or cash.The total amount must be recorded, in whatever

form it was brought in.

d) Computing Closing Capital Closing Capital can be found by preparing

a statement of affairs at the end of the year, in the same way as opening

statement was prepared.However, all adjustments relating to depreciation,

provision for DD etc, must be made in the closing statement of affairs

which were not necessary in the opening statement.

e) Preparing Statement of Profit Statement of P or L for the year - - - - -

Closing Capital ***

Add: Drawings ***

Less: Additional Capital Introduced ***

Less: Opening Capital *** ***

Net Profit/Loss for the year

***


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Distinction b/w B/S and Statement of Affair Method

Basis OfDistinction

B/S Statement of Affairs

1) Basis ofPreparation

Is based on ledgerbalances

Is prepared from balances,valuations, information frominquiry etc.

2) System Prepared on the basis of

Double Entry System.

Is out of incomplete

records.

3) Trial Balance TB is prepared before aB/S is drawn whichensures its arithmeticalaccuracy.

Has no foundation like TB.

4) Omission ofAssets andLiabilities

Is automatically found inB/S because the Debitsand Credits will not tally.

Statement of Affairs cannotreveal any omissions andcommissions .

5) Objective andPurpose

B/S reveals the financialposition of a businessaccurately.

It shows only estimatedfinancial position.It is alsoused in ascertaining P & Lof the business.

6) Capital Capital is shown in theB/S from the capital A/Cin the Ledger.

Capital, in the statement ofaffairs, is only a balancingfigure in the statement

2) CONVERSION METHOD The process of collecting, computing and

recording missing information along wwith the available data in theincomplete bookss of aa bussiness is called Conversion Method.Once the

books are converted,all future transactions can be recordewd as per

Double Entry System.


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Need For conversion The net worth method does not provide a clear

picture of the operating results of a business.It does not show saless,

purchases, gross profit, operating expenses etc.Conversion to double entry sysstem enables a business to avoid the

harassment of taxation authorities and ensures better management of the

business.

The following steps are 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 affected should be prepared.The balance in the

statement represents opening capital.

In problems, it may not be possible to complete the statement due tomissing opening balances like Drs,Crs, 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 a single column should

be prepared.Careful scrutiny of bank paass book and enquiry relating to

cash takings used by the owner for personal expenses and payments are

essential.

Step 3 B/R A/C, B/P A/C, Total Drs A/C and Total Crs A/C must be

prepared.Preparation of these A/Cs can help in finding any missing items

like opening or closing Drs, opening or Closing Crs, Credit Purchase and

Sales etc.

Step 4 The openiong statement of affairs can now 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 A/Cs must be written from the information

recorded in the cash book, total Drs A/C, total Crs A/C etc.The double effect

of every entry must be posted to the ledger, opening new accounts

wherever necessary.


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Step 7 All the accounts in the ledger must be balanced and a new TB

should be extracted.

Step 8 From the TB and any other additional details, trading A/C, P & L

A/C and B/S must be prepared.

The following table showws the figures which are usually missing in

problems and the appropriate A/C from which they can be found:

S No. Missing Items Appropriate A/C to find the Items

1)2)3)4)

5)6)7)8)

9)10)

11)12)13)14)

15)16)17)18)

19)20)21)22)23)

Credit SalesOpening DebtorsClosing DebtorsCash collected for Debtors

Credit PurchasesOpening CreditorsClosing CreditorsCash paid to Crs

Opening StockClosing Stock

Opening Bill ReceivableClosing Bill ReceivableB/Rs ReceivedB/Rs collected

Opening B/PClosing B/PB/P issued

B/P honoured

Opening Cash or BankClosing Cash or BankCash SalesCash PurchasesCash Received fromDebtors

Total Drs A/C reveal any one of theitems as balancing figure.

Total Crs A/C reveal any one of theitems as balancing figure.

Memorandum Trading A/C revealsany one of them;if gross profit isknown

B/R A/C can reveal any one of theitems as balancing figure

B/Ps A/C can reveaal any one ofthe items as balancing figure.

Cash and Bank A/C can reveal anyone of the missing items as


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24)25)26)27)28)

Cash paid to creditorsDrawingsSundry ExpensesAdditional CapitalSundry Income

balancing figures.

HOW TO SEARCH FOR REQUIRED INFORMATION?

Final A/Cs ITEM WHERE TO FIND OUT

1) Trading A/C

(Debit Side)

1) Opening Stock

2) Purchasesa) Cash Purchases

b) Credit purchases

3) Direct expenses such aswages, freight, carriage,octroi, fuel and power

etc.

Opening statement of

Affairs

Payment Side of CashBook

a) Total creditors A/C orb) Other information

Payment side of CashBook and/or adjustments

2) Trading A/C(Credit Side)

1) Sales:a) Cash Sales

b) Credit Sales

2) Closing Stock

a) Receipt side of CashBook

b) Total Drs A/C or otherinformation

Closing balances or otherinformation

3) P & L A/C (debitside)

1) Indirect expenses suchas administrativeexpenses, selling anddistribution expenses.

2) Expenses relating to

Payments side of CB/ oradjustments and fromother information.

Total Drs A/C & / or other


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debtors such as baddebts, discount allowedetc.

3) Depreciation

information.

Comparison of openingand closing value ofassets or rate ofdepreciation given in theadjustments.

4) P & L A/C (creditside)

1) Gross Profit

2) Income Received

3) Income Receivable

From trading A/C

Receipts side of CB

From Adjustments

5) B/S (Assets) 1) Cash in Hand and BankBalance

2) Sundry Debtors and B/R

3) Fixed Assets such asLand, Buildings, M/C etc.

Any additions to FA

4) Other Assets

From receipts side of CBor Op. Statement ofAffairs.

By preparing debtors.A/Cand B/R A/C or fromclosing balances given orother information.

From opening statementof affairs.

Payments side of CB

From Closing Balancesgiven or other information.

6) B/S (Capital) 1) Opening Capital

2) Additional Capital3) Net Profit or Net Loss

From opening statementof Affairs or from otherinformation.

From receipt side of CBFrom P & L A/C


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Drawings (to be deductedfrom Capital)

Payments side of CB.

7) B/S (Liabilities) 1) Bank Overdraft

2) Sundry Crs and B/P

3) Outstanding Creditors

Cash Book

By preparing Crs A/C andB/P A/C or from closingbalances given or otherinformation.

From opening statementof Affairs and from otheradjustments.

Calculation of Missing figures by preparing necessary Ledger A/Cs

1) Finding out Credit Sales or Closing Debtors A total debtors A/C is to be

prepared to find out either missing credit sales or closing balance of debtors

(sometimes cash received from debtors or Op. Balance of debtors also) in the

following manner:

Proforma of a Total Debtor A/C

Rs Rs

1) To balance b/d ( Opbalance)

2) To B/R (dishonoured)

3) To freight (charged)

4) To interest onoverdue A/C

5) To cash (refund forreturn)

6) To credit sales if

***

***

***

******

1) By cash received(either given orbalance figure)

2) By bank

3) By B/r

4) By Discounts

5) By Return Inwards

***

******

******


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given (if not given,balance figure iscredit sales)

*** 6) By bad debts

7) By Transfer toCreditors

8) By balance C/D(closingbalance)(either givenor balancing figure)

***

***

***

*** ***

2) Find out credit purchases or closing creditors A total creditors A/C 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 Rs

1) To cash paid(either given orbalance figure)

2) To bank

3) To B/P

4) To return outwards

5) To discountreceived

6) To allowances andrebates

***

***

***

***

***

***

1) By balance b/d (opbalance)

2) By cash (refund forreturns etc)

3) By B/P dishonoured

4) By credit purchases(either given or

balancing figure)

***

***

***

***


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7) To transfer fromdebtors

8) To balances c/d(closing balanceeither given orbalance figure)

***

***

*** ***

3) Finding out B/R a B/R A/C is to be prepared to ascertain either missing

opening or closing balance of bills receivable (sometimes B/R received

from debtors also) in the following manner:

B/R A/C

Rs Rs

1) To balance b/d(Op balance)(either given orbalancing figure)

2) To sundry Drs(B/R receivedduring the year)(either given orbalance figure)

***

***

1) By cash (orpresentation ofBills)

2) By Sundry Drs(B/R dishonoured)

3) By balance c/d(Closing balance)(either given orbalance figure)

***

***

***

*** ***

4) Finding out B/P


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B/P A/C

Rs Rs

1) To cash

2) To SundryCreditors (B/Pdishonoured)

3) To balance c/d

(closing) (eithergiven or balancefigure)

***

***

***

1) By balance b/d(opening) (eithergiven or balancefigure)

2) Bu SundryCreditors (Bill

accepted) (either

***

***

*** ***

5) Finding out Opening Capital An opening statement of affairs should be

prepared to ascertain opening balance of capital, without which closing

balance sheet cannot be prepared.

6) Finding Out Cash and Bank Balance A cash book should be prepared (incolumns form if necessary) to ascertain either opening or Closing balances of

cash and bank.The CB should be prepared and scruitinised thoroughly even

if the opening and closing balances are given in order to find out missing

figures.Such missing items can be any one of the following items, i.e.

Cash Sales, Sundry Income or Capital introduced (If Dr side is shorter than

Cr side)

OR

Cash Purchases, Drawings, Sundry Expenses or Cash Missing (If Cr side is

shorter than Dr side).

single entry system or a

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