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    Single Entry System

    Single entry system - Introduction
     It is defined as the method of accounting which does not follow the principle of double entry system .Under this method only one account is given debit or credit for each transaction. Under this method, only personal accounts are maintained and impersonal account may not be maintained in the books.
     Characteristics of Single Entry System
    a.      This system is a mixture of (i) double entry (ii) Single entry and (iii) no entry.
    b.      This system is suitable for small business.
    c.       In this system, generally personal Account are kept but real and Normal Account are ignored.
    d.      In the absence of record of the two-fold aspect of every transaction, it is not possible to prepare a trial balance and check the arithmetical accuracy of the books of account.
    e.       Under this system the profit or loss can be found out but its composition will not be available.
    Types of Single Entry System
    a.      Pure Single Entry System:-Under this type of Single entry, the dual aspect of each transaction is ignored. Only personal account of debtors and creditors are kept but no record is kept for Real or Nominal Account.
    b.      Simple Single Entry System:-Under this system, (i) Personal Account and (ii) Cash book are kept.
    c.       Quasi Single Entry System:-Under this System, (i) Personal Account, (ii) Cash book and (iii) Some other subsidiary books are kept.
    Merits of Single Entry System
    a.      It is an easy and simple method of maintaining books of accounts.
    b.      It is conventional and economical.
    c.       It is less time consuming.
    Demerits of Single Entry System:-
    a.      It is not a scientific method of accounting because it does not record the two-fold aspect of each transaction.
    b.      No trial balance can be prepared under Single Entry System.
    c.       The arithmetical accuracy of the books cannot be checked in the absence of trial balance.
    d.      In the absence of various checks, Fraud is more easily committed and it is very difficult to detect.
    e.       In the absence of Real and nominal accounts the true financial position of the business cannot be ascertained.

    Statement Of affairs
    In case of Single entry System, it not possible to prepare the Balance sheet of the business because real and nominal accounts are not maintained. Therefore, to judge the financial position of the business a statement showing various assets and liabilities on a particular date is prepared from such information as may be available. Such statement is known as Statement of affairs.
                    A statement of affairs is prepared by estimating the values of assets and liabilities (except cash and personal accounts) in the absence of real and nominal accounts in the single entry system.

    The following points should be considered while preparing Statement of Affairs:
    a.      The cash book should be balanced and cash in hand should be verified with the balance.
    b.      Bank reconciliation statement should be prepared to reconcile cash book and pass book balance.
    c.       The list of debtors and creditors should be prepared from personal accounts maintained in the ledger.
    d.      Stock-in-trade should be taken and valued at cost or market price, whichever is lower.
    e.       The value of fixed assets should be ascertained from vouchers or other available sources after providing depreciation.                                                                                                                                                    
    f.        All outstanding expenses and incomes should be considered and shown in the Statement of affairs.
    g.      Similarly, all expenses paid in advance and incomes received in advance should be considered and shown in the Statement of affairs.
    h.      Other specific assets and liabilities, such bills receivable, bills payable, loan from bank or other sources etc. should also be taken into consideration.
    i.         The excess of assets over liabilities should be taken as capital of the proprietor on the date when the statement of affairs is prepared.

    Objectives of Statement of affairs:
    a.      To depict the financial position of the business on a particular date showing various assets and liabilities.
    b.      To assist in ascertainment of trading profit or loss for a particular period.

    Determination of Profit under single entry system
    a.       Statement of Affairs Method or Net Worth Method
    b.      Conversion Method                                                                                                                                                              
                   
    a.       Statement of Affairs or Net Worth Method: When books of accounts are maintained under single entry system, it is not possible to prepare trading and profit and loss account because no record is maintained for nominal accounts. However in order to determine profit or loss, Statement of affairs method based on fundamental balance sheet equation is followed. Under this method, two balance sheets (Statement of affairs) are prepared. One at the beginning of the period for finding out the opening capital and the other at the end of the period for finding out the closing capital. But necessary adjustments is required to be made for Drawings made by the proprietor, additional capital introduced during the year, interest on drawings and on capital for ascertaining the true operating profit.

    Steps for ascertaining Profit under Statement of affairs Method:    
                         i.            A Statement of Affairs at the beginning of the year is prepared to determine the amount of capital of the proprietor at the beginning of the year.

                       ii.            Similarly, A Statement of Affairs at the end of the year is prepared to determine the amount of capital at the end of the year.

                      iii.            Drawings made by the proprietor during the year should be added to the amount of Capital at the end of the year for the reason that the capital at the end would have been more if there is no such withdrawal by the proprietor. 

                     iv.            Similarly, Capital introduced during the year should be deducted from the Capital at the end of the year for the reason that the capital at the end would have been less if there is no such addition by the proprietor.

                       v.            Capital at the beginning of the year should be deducted from the closing capital as adjusted in step (c) and (d) above and the difference will be either a trading profit or loss. If the adjusted capital exceeds the opening capital, the excess will be profit for the year. But if the adjusted capital is less than the capital at the beginning of the year, the difference will be loss for the year.

                     vi.            Interest on capital and interest on drawings (if any) are to be adjusted in profit or loss as derived in step (e) to arrive at the net profit or loss for the year.

    b.      Conversion from Single Entry System to Double Entry System:
                    The following Steps should be followed if it is desired to change the system of accounting from Single entry to double entry:

                         i.            A statement of affairs should be prepared at the beginning of the accounting period to determine the opening capital of the business.

                       ii.            The Cash Book should be gone through and entries relating to impersonal accounts should be posted to their respective accounts as impersonal accounts are not maintained under single entry system. This would complete the double entry of the cash book. If no cash account is maintained, pass book should be carefully examined and all cash transactions relating to business to be identified and with the help of it cash book should be prepared.

                      iii.            If a Petty cash book is maintained, the monthly analysis should be posted to the debit of the various accounts for expenses and the total credited to Petty cash account.

                     iv.            Prepare Total Debtors account, Total Creditors account, Bills receivable and Bills payable account, Total Sales and Total Purchases account. This helps in finding out different missing figure relating to these accounts.

                       v.            Now, the personal accounts and Cash book, which have already been kept under single entry system, should be scrutinized in order to find out the nominal items. Such items should be posted to their respective impersonal accounts so that the two-fold effect of such transactions should be completed.

                     vi.            After completing the double entry of all the transactions, a Trial balance should be prepared to test the arithmetical accuracy of the books.

                    vii.            From the Trial balance, Trading and Profit and Loss account and Balance sheet can be prepared after taking into consideration the necessary adjustments like outstanding expenses and incomes, depreciation, provision for bad debts and discounts etc.


    Distinguish between
    (a)  Difference between Double Entry System and Single Entry System
    S.N.
    Double Entry System
    Single Entry System
    1.
    Under this system, both aspect of each transaction are record.
    Under this system, both aspect of each transaction are not recorded.
    2.
    In this system, Personal, Real and Nominal accounts are kept fully.
    In this system, only Personal Accounts are kept and Real and Nominal Accounts are ignored.
    3.
    In this system, Cash book, General ledger, Debtors’ Ledger and Creditors’ Ledger are maintained.
    In this system, only Debtors’ Ledger and creditors’ Ledger are kept. Cash book is also kept but personal transaction gets mixed up with business transaction.
    4.
    Under this system, arithmetical accuracy can be checked by preparing Trial Balance at any moment of time.
    Under this system, arithmetical accuracy cannot be checked because to Trial Balance can be prepared.
    5.
    In this system, Trading, Profit and Loss Accounts and balance sheet can be prepared.
    In this system, Trading, Profit And Loss Accounts and Balance sheet cannot be prepared.
    6.
    For interpretation of financial statement, we can compute different ratios, if the accounts are maintained under this system.
    Vital ratios cannot be computed, if the accounts are maintained under this system.
    7.
    This system is scientific and follows certain rules.
    This system is unscientific and does not follow any concrete rules.













































    (b)  Difference between Balance Sheet and Statement of affairs
    S.N.
    Balance Sheet
    Statement of affairs
    1.
    It is a Statement of assets, Liabilities and Capital extracted from ledgers balances maintained under the double entry system.
    It is a Statement of assets, Liabilities and Capital extracted from incomplete records.
    2.
    In this system, Personal, Capital account is taken from the ledger.
    In this system, Capital is the excess of assets over liabilities.
    3.
    The basic purpose of Balance sheet is to show the financial position of the business on the last day of accounting period.
    A statement of affairs is prepared to show the financial position as well as it helps in ascertaining trading profit or loss.
    4.
    The financial position disclosed by a Balance Sheet is reliable.
    The financial position as disclosed by a Statement of affairs is not as reliable as that disclosed by a Balance sheet.