 Single entry system

o System of record keeping in w/c transactions are not analyzed and recorded in the
double entry framework
o When records are incomplete
o Records maintained are represented only by the so-called “bare essentials”
o Normally includes a record of cash, AR, AP, PPE and taxes paid
o Major record under the single entry system: cashbook
 Maintained showing all receipts and disbursements
o And because no specific accounts for the receipts and disbursements are debited or
credited
 Only a description is made
 With respect to AR and AP – only a list of customers and creditors is made with
their corresponding balances
 Single entry method
o Compare the capital or retained earnings at the beginning of the year and capital and
retained earnings at the end of the same year after taking into consideration
withdrawals or dividends and additional investments
 Difference is either net income or net loss
o Net assets approach or capital maintenance approach
 Formula for proprietorship or partnership
Capital, end of the year XX
Add: Withdrawals XX
Total XX
Less: Capital, beginning of year XX
Additional Investments XX XX
Net income (loss) XX

 Formula for corporation

Retained earnings, end XX
Add: Dividends declared or paid XX
Other items that decrease the retained earnings
But not profit or loss XX XX
Total XX
Less: RE, beg. XX
Other items that increase retained earnings but not
Profit or loss XX
Net income (loss) XX

 Increase in assets and decrease in liabilities

o Increase net assets
 Increase in liabilities and decrease in assets
o Decrease net assets
 Dividend paid
 o Added back to net assets because it decreased net assets but not representing profit or
loss
 Increase in share capital and increase in share premium
o Deducted because they increased net assets but not representing profit or loss
 Preparation of Financial Statements
o Involves the computation of individual revenue and expense balances by reference to
cash receipts and disbursements and the change in assets and liabilities
o Formulas used in converting cash basis to accrual basis of accounting
 Involve the computation of
 Sales
 Purchases
 Income other than sales
 Expenses in general
o Statement of Financial position
 Involves inventorying, counting and verification procedures to determine the
nature and amount of most assets and liabilities
o Accounts and notes receivable
 Summarized from unpaid sales invoices and promissory notes
o Merchandise on hand, supplies and other inventories
 Could be counted and their cost determined from purchase invoices
o Cost of PPE
 Established by reference to deeds of sale and other documents evidencing
ownership of title
o Accounts and notes payable
 Determined from purchase invoices, memoranda, correspondence and even
consultation with creditors
o Ownership equity or capital
 Difference between the value assigned to assets and liabilities