Single Entry System/Accounts From Incomplete Records:
Learning Objectives:
-
Define and explain single entry system.
-
What are the limitations of single entry
system.
-
How profit is calculated under single entry
system of accounting.
Definition and Explanation of Single Entry System:
It is difficult to define single entry system
because, in fact, there exists no system like single entry system. Broadly
speaking, it is a defective double entry system. Any system that falls short
of complete double entry method is called single entry system.
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Defects/Limitations/Disadvantages of Single Entry System
Ascertainment of Profit and Loss:
Statement
of Affairs - First Method:
Correct final accounts of a business can be
prepared in the records are maintained under the double entry system . How
every where the record is incomplete, and it is not all possible to complete
it by double entry, in such cases the final accounts can be only
approximately prepared by means of a statement of affairs. In appearance the
statement of affairs is similar to a balance sheet.
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Difference Between Statement of Affairs and Balance Sheet:
As real or property accounts are not
maintained and also because a capital account does not exist under the
single entry system, a balance sheet cannot be prepares in the same way as
is done under the
double entry system. However, in order to have an idea
about the financial position on a particular date information concerning the
available assets and liabilities is gathered and a statement is prepared
setting in it assets and liabilities on the date; this statement is called a
statement of affairs. The assets and liabilities are set out in the form of
a balance sheet. The excess of assets over liabilities is shown as capital.
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Conversion into Double Entry System:
Conversion of books from single entry system
to double entry system is possible either with retrospective (i.e., on and
from a date before the date of conversion arrangements) or with a
prospective effect (i.e., on and from the date on which arrangements are
made for conversion).
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