Accounting from Incomplete Records
Single Entry System | XII Commerce Accounting
đ Meaning
Single Entry System is an incomplete and unscientific system of recording business transactions. It is not a specific system, but a lack of system.
It usually records only Cash and Personal Accounts of Debtors and Creditors. Real and Nominal accounts are completely ignored.
âī¸ Characteristics
- Maintains only Cash Book and Personal Accounts.
- No uniformity in recording transactions.
- Suitable for small business concerns.
- Based on estimates and guesses.
- Profit/Loss is calculated by comparing capital.
â ī¸ Limitations
- Arithmetic accuracy cannot be checked (No Trial Balance).
- Real financial position cannot be ascertained.
- Not accepted by Income Tax Authorities.
- Difficult to detect fraud and errors.
- Inadequate for planning and decision making.
| Basis of Difference | Single Entry System | Double Entry System |
|---|---|---|
| Recording | Only cash and personal accounts are recorded. | Both aspects (Debit & Credit) of every transaction are recorded. |
| Accuracy | Arithmetical accuracy cannot be checked. | Arithmetical accuracy is verified via Trial Balance. |
| Financial Position | Cannot be presented accurately. | True and fair financial position is presented. |
| Suitability | Suitable for small businesses only. | Suitable for all types of businesses. |
| Reliability | Less reliable and unscientific. | Highly reliable and scientific. |
| Basis of Difference | Balance Sheet | Statement of Affairs |
|---|---|---|
| Basis of Preparation | Prepared from the Trial Balance. | Prepared from incomplete records and estimates. |
| Reliability | Highly reliable and accurate. | Less reliable as it involves estimation of assets/liabilities. |
| Objective | To show the true financial position. | To calculate the opening or closing capital. |
| Missing Items | Omissions can be easily detected. | Omissions are difficult to detect. |
đ Ascertainment of Profit and Loss (Statement of Affairs Method)
Since a Trial Balance is not available in the Single Entry System, profit or loss is calculated by comparing the Capital at the end of the year with the Capital at the beginning of the year, after making necessary adjustments.
Steps to Prepare:
- Prepare Opening Statement of Affairs to find Opening Capital (Assets – Liabilities).
- Prepare Closing Statement of Affairs to find Closing Capital (Assets – Liabilities).
- Adjust the Closing Capital for:
- Add: Drawings
- Less: Additional Capital introduced
- Compare the Adjusted Closing Capital with the Opening Capital.
- Formula:
Profit = Adjusted Closing Capital – Opening Capital
Loss = Opening Capital – Adjusted Closing Capital
