[Class 11 Accountancy Notes, AHSEC, CBSE, Chapter Wise Notes, Accounting From Incomplete Records, Single Entry System]
Class 11 Accountancy Notes
AHSEC Class 11 Notes
Unit – 8: Accounting From Incomplete Records
Q.1. What is Single Entry System?
Mention its characteristics. 2015,
2017, 2018, 2019
Ans: Single entry system: 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.
Q.2. What are the different types of
single entry system? 2016
Ans: 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.
Q.3. Mention three merits and
drawbacks of single entry system. 2015,
2016, 2017, 2018
Ans: 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: 2017
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.
Q.4. What is Statement of affairs?
What are its objectives? Distinguish between Statement of affairs and Balance
sheet.
Ans: 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.
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.
Difference between Balance Sheet and Statement
of affairs 2015, 2018,
2019
Ans: Difference between Balance Sheet and
Statement of affairs
|
Balance Sheet |
Statement of affairs |
|
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. |
|
In this
system, Capital account is taken from the ledger. |
In this
system, Capital is the excess of assets over liabilities. |
|
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. |
|
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. |
|
Balance
sheet is prepared in case of double entry system. |
Statement
of affairs is prepared in case of single entry system. |
Q.5. How profit is determined under
single entry system?
Ans: Determination of Profit under
single entry system
a.
Statement of Affairs Method or Net Worth
Method 2015,
2018
b.
Conversion Method
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.
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.
6. Distinguish between Double Entry
System and Single Entry System. 2017,
2019
Ans: 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. |
This
system is scientific and follows certain rules. |
This
system is unscientific and does not follow any concrete rules. |