Financial Accounting Single Entry – tryspring

By | August 22, 2019

Financial Accounting – Single Entry

As we know, there are two systems of recording transactions in
our books of accounts. In the previous chapters, we have learned
about the double entry system, now let’s discuss another system
of accounting i.e. Single Entry System
(SES).

Meaning and Silent Features of SES

For every accounting transaction, everyone does not follow the
principle of double entry system of accounts. Some of the small
business units do not keep their books of accounts as per double
entry system. In simple words, single entry system of accounts
mean — the business unit, which does not follow the principle of
double entry system.

There are following two types of SES of accounts −

  • Pure Single Entry System − Personal accounts like
    sundry debtors and sundry creditor’s accounts are maintained,
    but real and nominal accounts are not opened under this
    system.

  • Popular Sense − Under this system, three types of
    treatment are done.

    • Double entry system followed for cash received from the
      debtors and the cash paid to the creditors.

    • Single entry system followed for expenses paid, purchases
      of goods, purchases of fixed assets etc.

    • Provisional entries like bad debts, depreciation, etc.
      are not done.

Difference between SES and DES

  • Single entry is an in-complete system of accounting, whereas
    double entry system (DES) is a complete system of
    accounting transactions.

  • There is no reliability on books in a single entry system,
    whereas double entry system is a reliable accounting system.

  • Checking of the arithmetical accuracy is possible in a double
    entry system through preparation of trial balance, whereas it
    is not possible under a single entry system.

  • Since, single entry system does not maintain Trading, and
    Profit & Loss Account, and Balance Sheet; hence,
    ascertainment of the actual profit and exact financial
    position of the firms is not possible, on the other hand, all
    above is quite possible under the double entry system of
    accounting.

Limitations of SES

  • Single entry system of accounts do not record two-fold
    aspects of each and every transactions, hence, it is not a
    scientific system of keeping accounting records.

  • Checking of the arithmetical accuracy is not possible due to
    non-preparation of a trial balance. Preparation of a trial
    balance is not possible, because the method of double entry
    system is not followed for each business transaction.

  • Ascertainment of the actual profit of a concern is not
    possible, as nominal accounts are kept under single entry
    system. In the absence of nominal accounts, Trading and
    Profit & Loss account cannot be prepared.

  • It is not possible to find the exact financial position of a
    firm in the absence of real accounts, because without real
    accounts, it is not possible to prepare the Balance sheet of
    a firm on a particular day.

  • Outsiders never rely on the books of accounts of a firm.

  • In case where owner of the business wants to sell his
    business, ascertainment of exact value of the business is not
    possible, especially goodwill value of the firm.

  • Single entry system is practiced only by the small business
    units.

Preparation of Statement of Affairs

To know the financial position of a business, the list of assets
& liabilities and statement of affairs are prepared on the
last date of accounting period. As stated earlier, in the absence
of real accounts, it is not possible to prepare a Balance sheet.

Following points are required to prepare the statement of affairs

  • With the help of personal accounts, a list of debtors and
    creditors should be prepared.

  • Stock valuation method will be either on cost or market
    price, whichever is lower.

  • Cash book balance should be physically verified with the cash
    book.

  • Bank balance should also be reconciled with the Bank
    statements.

  • Statement of affairs should contain the income received in
    advance and the expenses paid in advance.

  • Excess of assets over liabilities will be capital of the
    proprietor or firm.

  • Basis for the valuation of fixed assets will be the purchased
    voucher and any other available evidence.

How does the Statement of affairs Differ from Balance-Sheet?

Main difference between the statement of affairs and the Balance
sheet is —reliability on first is prepared through incomplete
information and on later is based on the scientific method of the
double entry system of accounts.

Ascertainment of Profit under SES

We have the following two methods to ascertain the profit under
single entry system −

  • Statement of Affairs or Net worth Method and
  • Conversion Method

Net worth Method

Under the single entry system, the ascertainment of the profit
can be done without preparing a Trading and Profit & Loss
account. For example,

1 To know the capital at the beginning of the year or at the
last date of the preceding accounting year, first step is to
prepare the statement of affairs at the beginning of the
year.
2 One statement of affairs should be prepared on the last date
of accounting year to ascertain.
3 Drawing should be added to the amount of capital as
ascertained at the end of the year and the capital introduced
if, any, during the year will be subtracted.
4 Capital introduced if, any, during the year will be
subtracted.
5 Difference of (3) – (1) will be the profit or loss for the
year. If, (3) is more than (1), then it is a profit or vice
versa.
6 The amount of profit or loss as calculated by the step No.
(4) above, will be adjusted by the interest on capital and
the interest on drawing (to ascertain Net Profit of the
firm).

Conversion Method

Under the conversion method system of accounting, change from the
single entry system to the double entry system on a particular
date can be done by the following procedure −

  • Statement of affairs should prepare on the date on which the
    change need to be made. After the proper checking and
    verification of such balances from available records, all the
    balances like cash balance, bank balance, assets,
    liabilities, debtors, and creditors should appear in the
    statement of affairs.

  • An opening journal entry should be made to bring into the
    books as −

Journal Entry

AssetAA/cDr

AssetBA/cDr

AssetCA/cDr

LiabilitiesAA/c

LiabilitiesBA/c

LiabilitiesCA/c

Being all assets and all liabilities brought forward from
the statement of affairs a/c.

Above entry will be a base entry to open all new books under the
double entry system of accounts and all the future transactions
will be booked according to the double entry system as explained
earlier.

Conversion of Books of Last Year from SES into DES

To convert books of the last year from single entry to double
entry system, it will be assumed that all the subsidiary books
are maintained properly under the single entry system. However,
following procedures need to be followed −

Where Cash Book, Personal Books, and Subsidiary Books are
Maintained −

  • Opening statement of the affairs should be prepared at the
    beginning of the period.

  • All the impersonal accounts as appeared in the cash book
    should be posted in the respective impersonal accounts, if it
    has not been done earlier.

  • New impersonal accounts need to be opened through total of
    the subsidiary books. For example, with the total of sales
    book and purchase book, sale account will be credited and
    purchase account will be debited, vice versa in case of
    returns.

  • All the new account should be opened for the entries relating
    to discount, rebates, bad debts, etc. which are not passed
    through the subsidiary books. This procedure will give
    two-folds effect of such transaction as appeared in the
    personal accounts.

  • Month-wise positing should be done to the ledger accounts
    through petty cash book, if, maintained by the firm.

  • After completion of the above procedure, a trial balance
    should be prepared to confirm the arithmetical accuracy of
    the books of accounts.

  • After completion of the above procedure of trial balance,
    Trading and Profit & Loss account and Balance sheet
    should be prepared (after considering all the adjustments
    like prepaid expenses, outstanding expenses, income received
    in advance, or receivables as well as the provisions for
    depreciations, doubtful debts etc.

Where only Cash Book and Personal Books are Maintained

In this case, a different procedure of conversion will be
followed −

  • As described earlier, an opening statement of the affairs
    should be prepared at the beginning of the period.

  • All the real and nominal accounts as appeared in the cash
    book and not posted earlier in any account, should be posted
    in respective accounts.

  • An analysis of debit and credit side of personal accounts
    like debtors accounts and creditors accounts will be done as
    per the method given below −

Summary of Analysis to be Done

Sr.No. Debit side of Creditors’ Accounts Debit side of Debtors’ Accounts
1 Bills payables Opening balance as appeared in opening Statement of Affairs
2 Discounts and rebates received Sale (Credit)
3 Return inward (Purchase returns) Transfers
4 Transfers Bills receivables (Dishonored)
5 Cash paid to Creditors
6 Endorsement of Bills Receivables in favor of Creditors
Sr.No. Credit side of Debtors’ Accounts Credit side of Creditors’ accounts
1 Cash received Opening balance as appeared in opening Statement of Affairs
2 Discount Allowed Purchases (Credit)
3 Bills receivables received Transfers
4 Discount and allowances Bills payables (dishonored)
5 Transfers
6 Goods returned (Sales returns)
7 Bad Debts

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