22 Single Entry System Introduction ‘Many small businesses have neither the time nor the experience necessary to maintain a full set of accou records using the double enury syetem; and cannot afford the expence of outside ctaff to keep euch r However, every business is interested to know its profit from time to time. Any set of procedus ascertaining profits that does not provide forthe analysis of each transaction in terms ofthe double entry system of bookkeeping is generally referred to as ‘Single Entry System’. Strictly speaking, single ent-y constitu incomplete records rather than single entry accounting. Therefore, the expression single entry does not mean that there is only one entry for each transaction. In fact, single entry system is a mixture of : 12) double entry’ Gi) single enw; and (ii) no enuy. Under this system, certsin transactions are recorded just like the 2ouble entry system; for exemple : cash collected from debtors — itis recorded in the Debtors Account as well the Cash Account. Again, certain transactions are recorded partially, e.g., cash sales, c Similarly, certain transactions are not recorded at all, .g.. Bad Debt, Depreciation, etc. Sing! may be defined as a system in which accounting records ae noi kept strictly according to the double eni principles of bookkeeping, Since all the transactions are n0t recorded strictly on the double entry principle, it is not possible to prepare a Trial Balance and check the arithmetical accuracy of the books of account. Consequently, the system engenders a spirit of laxity and invites frauds and misappropriation. Single entry system is uncertain and vague and is not governed'by iy definite rules of operation. Tn India, there are many small-scale business which do not keep complete records for ali their financial transactions because the proprictors of these businesses are untrained in accounting and regard it better to Keep an additional productive employee rather than a bookkeeper. They essuime thet without an elaborate eecounting system. they can exercise control over assets, expenses, revenues and liabilities. They record few trensactions Completely just like the double entry system but a majority of the transactions are recorded only partially. Pure, Simple and Quasi Single Entry Systems ‘The expression ‘single entry’ covers a wide range of accounting records, sterting from the brief notes of transactions kept by a hawker to the elaborate records kept by a large tradicional enterprise. The degree of incompleteness of records differs from one business t© another, according to its nature Generally, the Single Entry System can be classified into the following three catezories22.2 Single Entry System 1. Pure Single Entry System Under this system, only Personal Accounts are kept. No records are kept for Real or Nominal Accounts 2, Simple Single Entry System Under this system, (i) Personal Accounts; and (ii) Cash Book are kept. 3. Quasi Single Entry System Under this system, (i) Personal Accounts; (ii) Cash Book; and (iii) Some other Subsidiary Books are Kept. Characteristics of Single Entry System, 1 2 This system is a mixture of: (i) double entry; (i) single entry; and (ili) no entry ‘This system is suitable for small businesses where the proprietor or partners can directly control the affairs of the business. In this system, generally Personal Accounts are kept but Real and Nominal Accounts are ignored, ‘Thisis because, a single entry takes account only of the personal transactions and leaves the impersonal transactions of the business unit entirely unrecorded. In the absence of record of the two-fold aspect of every transaction, itis not possible to prepares tial balance and check the arithmetical accuracy of.the books of account. Similarly, no Balance Sheet can be prepared in the absence of balances in ledge. ‘This system is highly changeable and flexible and itis not governed by any definite rules of operation. ‘Under this system the profit or loss ean be found out but its composition will not be available imitations of Single Entry System Single entry system ignores the coacept of duality anc, therefore, transactions are not recorded in their two-fold aspects, Asaresult, the final accounts of the business toncern cannot be prepared in the usual way. The other limi H (Tian te apes ch non we ect] Ua a oc ech retin areal tations are as under ‘Since no trial balance can be prepered, the zvithmetical accuracy of the books of account cannot be checked. This system engenders a spirit of laxity and invites frauds and shisappropriations, Since no Nominal Accounts are maintained, the Trading and Profit and Loss Account cannot be prepared and, consequently, the different ratios such as gross profit ratio, net profit ratio and operating ‘ato, ete., cannot be computed. (Owing to incompleteness of record, proper appraisal of the financial position ofthe business is not possible. No limited company can keep account under this system, because of Jegal restrictions. Difference between Double Entry System and Single Entry System Boule Ey Stem —— J Sng System Tb i am, Parson, Real and Nominal Accouns ay mt in is system, only Personal Acouns ae kept and Real rd "Nominal Accounts are ignored, However, n some cases Cth Accounts maintines) Creo’ Ledger ar marine. pl, Cash Bock also kept but personal ransactons gel nizaé | up wit busines vansactons. | 7 | Under Bis system, antnetcalacaracy cannot be checked cause n Tal Balance can be prepared ints sem, Trading, Poftand loss cous and Saarce | &. | is aysten, Tracing, Profiand Loss Acctunis and Bans Shesiconbe prepared, —_ | Stas cannot be prepares. | Tae an Sta oman ene ede ee leaoce san monet eine, in tis sys, Cash Book General Legs, Dabiow Ledger and FF Inds syle, ony Debio Ledger and Gediows Ledge ae € Fa ignitor rycen anos Hens E_| Vik nee ee cmp gs po ib “| prot rato et) ihe secouts ae mainland unde his sem, TT Ti Sy suns and does na alow any concedes. |Financial Accounting 22.3 Ascertainment of Profit or Loss ‘There are mainly two approaches for income determination : (@) The Transaction Approach, and (b) The Balance Sheet Approach. {2} The Transaction Approach When books of account are maintained under complete double entry principles of bookkeeping, this approach is followed for determining the profit or loss of a particular period. In this approach, every trarisaction is analysed and the following steps are followed: 1. We record only transactions to business — events which can be translated into monetary terms 2. Every transaction involves two accounts — one of these accounts is debited and the other is credited in the books of primary entry. 3. From books of primary entry, we prepare Ledger Accounts and, thereafter, accounts are balanced. 4, A Trial Balance is prepared from the Ledger; balances to ensure the arithmetical accuracy of the records. 5, After preparing the Trial Balance, adjusting entries are passed to record the internal transactions such as provision for bad debts, depreciation, etc. 6. Asecond Trial Balance (called Adjusted Trial Balance) is prepared to incorporate the adjusting entries. 7, From the Trial Balance, nominal accounts are transferred to Trading and Profit and Loss Account. 8 The Trading Account shows the gross profit and the Profit and Loss Account shows the net profit or loss. The above procedures have been discussed here just for comparison of the twa approaches. (b) The Balance Sheet Approach When books of account are maintained under single entry system, it is not possible to determine profit or loss by the transaction approach because we cannot get full information regarding all transactions, ‘The problems that arise in the single entry system for the determination of profit can be solved within the comteat uf the fuudaental Balawce Sheet equation, as under: Capital = Assets — Liabilities Under this method, two Balance Sheets (better to say, Statement of Affairs) are prepared. One, at the beginning of the period for finding out sre Opening Capital and the other at the end of the period for finding out the Closing Capital. A comparison is made between the opening and closing capital. If the closing capital is more than the opening capital, it shows an increase in capital, which means a profit. Conversely, ifthe closing capital is less than the opening capital, it shows a decrease in capital, which means a loss for the period. In other words: Closing Balance Sheet: Assets = Liabilities + Capital Opening Balance Sheet: Asset Change in period: A Assets =A Liabilities + A Capital ‘The change (A) in assets may be due to change in liabilities or capital or both, The increase in assets due inerease in capital represents profit. Let us take a simple example in which Mr X keeps no adequate records. The firm was set up on Ist January 2002 with a capital in cash Rs 50,000. At the end of the year, the following assets and liabilities were revealed: Assets : Building at cost — Rs 30,000; Stock —Rs 10,000; Trade debtors — Rs 20,000; Cash — Rs 15.000 Liabilities : Trade ereditors — Rs 5,000. From this, it appears that the changes for the year are : azote = Tabi = Capital ‘Gising positon Rs) 75,000 5,000 70.000 ‘Opening poston (Rs) ~ 50,000 = 50,000 [Net changes (Rs [ 25.000 5000 20,00022.4 Single Entry System Assets have increased by RS 25,000. Out of this increase, Rs 5,000 owing to increase in liabilities and Rs 20,000 owing to increase in capital and it is nothing but profit earned during the year 2002. We can also calculate the above profit as follows : Statement of Profit and Loss Gloag Capel Assels — Labites) Less: Opening Capital Profi for he year 70.000 ‘The above are only the initial figures for income. Any fresh capital introduced during the period by the owner or any withdrawal by him will definitely affect the size of the profit calculated. The ascertainment of profit by the above process needs to be adjusted for the introduction or withdrawal of.capital. This is because, ignoring capital introduced during the period would be an overstatement of income. Similarly, ignoring withdrawals would show an understatement of income. Therefore, if there is any introduction of fresh capital or withdrawal by the proprietor, then the profit or loss should be calculated as follows : Statement of Profit and Loss Gisiag Caplal (Fasels — Libis) ‘Add: Drawings (Since f they nad nat been witherawn from the business, the increase in capital would have been greater) Less: Opening Capital ‘Less: New Capital paid in (Since without the increase in capital would have been smaller) Prof for he year aa However, the above profit figure is not really a very satisfactory one, because no adjustments have so far been made for depreciation on assets or provision for doubtful debts etc, The above profitis termed as “Trading Profit’ or “Profit before adjustments’. Therefore, net profit can be ascertained only when we deduct the depreciation, provision, etc from the above trading profit. Steps For Ascertaining Profit Step 1 Calculate Opening Capital : It can be calculated by preparing a Statement of Affairs at the beginning of the year, The Statement of Affairs is just similar to a Balance Sheet. All the assets are shown on the right-hand Side and all the liabilities are shown on the left-hand side of the Statement of Affairs. Ifthe total ofthe right-hand side is greater than the total of the left-hand side, it represents ‘Opening Capital’. The assets and liabilities are ascertained as follows: 1, Amount of cash is ascertained by physical count; 2. Bank balance is ascertained from the Pass Book; 3. The closing stock is ascertained by physical stock taking; 4. The balances of debtors and creditors can be ascertained from the list, the trader maintains; 5. Regarding other assets, the trader prepares a list and values them; and 6, Other relevant information is supplied by the trader from his memory. Step 2 Ascertain the Drawings During the Period: Ascertainment of drawings for the period is a most difficult task. Drawings increase the personal capital but decrease the business capital. Since the entries are recorded from the point of the proprietor, personal affairs of the proprietor get mixed up with the business affairs. To take an account of drawings, all withdrawals from the business must be traced. For calculating drawings, the following are to be considered: (i) How much is drawn from the business at regular intervals for household or private purposes ? and (ii) How much has been utilized for household or private purposes from the sale proceeds or other receipts before depositing it into the bank ? Step 3 Ascertain the Capital Introduced During the Period : A trader may introduce new capital (in the form of ‘cash or assets) during the petiod. The trader is to make a list of the amount of capital introduced during the period.Financial Accounting 22.5 Step 4 Calculate Closing Capital : It can be calculated by preparing the closing Statement of Affairs in the same manner We prepare the opening Statement of Affairs in Step 1. However, in the closing Statement of Affairs, ‘we will consider assets and liabilities at the end of the period (before adjustments). Step § Prepare Statement of Profit : The statement of profit is to be prepared as follows: Statement of Profit and Loss for the year ended .. Rs tosing Capital Georeagusiment) ce ‘Att: Drawings forthe period Less: Opening Capital New Capita introduced Profit before adjustments Less :Adjustmenis (i) Depreciation (i) Provision for Bad debts, ete Not profit for the period ‘Less: Approptatons 4) Salary ofthe pariners? (i) Interest on capital” Divisible profit ® "Applicable to partnership finns. Final Statement of Affairs After ascertaining profit by following the above procedures, a final Statement of Affairs is prepared at the end of the period after incorporating.adjustment for depreciation, provision for bad debts, etc. The final Statement of Affairs will appear as follows : Statement of Affairs as at... Tables is Rs Assels Opening Capital Plant & Machineny ‘Add: New Capital introduced ‘Less: Depreciation ‘Add: Profifor the year Fumiture Less: Depreciation ‘Less: Drawings Debiors Creditors Less: Provision for bad debts Stock ‘Cash at bank Cashin hand Difference Between Statement of Affairs and Balance Sheet A Statement of Affairs is a statement of the assets, liabilities and capital prepared from incomplete records whereas a Balance Sheet is a statement of the assets, liabilities and capital extracted from ledger balances maintained under the double entry system. Under the double entry system, the basic purpose of the Balance Sheet is to show the financial position of the business on the last day of the accounting period. Under single entry, the same purpose is served by the Statement of Affairs. Also, it is used as the basis for calculating the trading profit or loss for the period. wtustration 1 ‘Mr Sunanda Sanyal, who keeps his books on single entry system, tells you that his capital on 31.12.2002 is Rg 18,700 and on 1st January, 2002 was Rs 19,200, He further informs you that he gave loan of Rs 3,500 to his brother on private account and withdrew Rs 300 p.m. for personal purposes, He also used a flat for his personal purposes, the rent of which @ Rs 10022.6 Single Entry System per month and electric charges Rs_10 per month were paid from the business account He sold his 7% Government Bond TFRs 2-000 at 3% premium and brought that money into business. Besides this, there is no other information, "You are required to prepare his Statement of Profit for the year ended 31.12.2002. Solution Sunanda Sanyal Statement of Profit and Loss for the year ended 31st December, 2002___Rs_RS Ciesng Capital (0.122000) BI Adds Draviogs: Laan gen to brother 3500 Witareals for personal purposes (Rs 300 x 12) 3600 Renk ofthe fat (Rs 100 x 12) 41200 Elect charges (Rs 10 12) ‘zo| e420 2,20 Less: Capital nroduoed dung the period — 7% of Govt. Bond of Rs 2,000 at 3 pram, Le, (RS 2,000 x 103) 100 2.060 25,060 Less: Opening Capital (14.2002) . 419200 Profit forthe period 5.860 IMustration 2 On January 1, 2002 a trader started a business with a Capital of Rs 1,00,000 with which he opened a bank account, On the same day, he bought furniture and fittings for shop costing Rs 4,800 and goods for trade costing Rs 25,000, ‘On December 31, his stock-in-hand was valued at Rs 29,000 and furniture and fittings stood at Rs 6,300. On that date, his book debts amounted to Rs 78,000 of which Rs 1,200 was considered to be bad. Creditors amounted to Rs 15,000. His balance as pet Cash Book was Rs 5,500 a cheque for Rs 400 sent for deposit on December 30, was not realized till after December 31, and cheque for Rs 700 issued on December 29, was not presented to Bank tll after December 31. Bank charges for the year amounted to Rs 50 but this was not known tothe tader on December 31. His drawings during the year ‘amounted to Rs 9,300. He had also taken for personal use goods from the shop valued at Rs 1,500. Prepare a Statement showing the trader's profit or loss during 2002. Ascertainment of Closing Capital (before adjustments) ~ Liabilities, {Rs ‘Assels. Creditors 15,000 | Stock CGosing captal (balancing igure} 4.08 800 | Fumiure & Fitings Book debts Cash-atbank (Note 1), _ Ba ‘Statement of Profit and Loss for the year ended 31st December, 2002_Rs an GeeEs Goods Less: Opening Capital (as given} Profit before adjustment Less: Adustnen Bad debis 41200 Bank charges (See Note) 50| 1.250 Profit forthe period 73,350 Note Since te amended Cash Book balance isto be taken as the closing balance of cash at Bank, there will be no adjustment for: (a) Cheque deposited into bank but not realised, and (b) cheque issued but not presented. “Therefore, inthis problem, when we prepare the closing Statement of Affairs, Cash-at-Bank will be Rs 5,450 (Rs §,500 ~ Rs 50) Mlustration 3 ‘The Statement of Affairs of Sri S. Roy as on Ist April, 2002 is given below: Taiives Fe Asssis Rs ‘Sundry Gredtors 16,500 | Cash 7450 ‘Accrued expenses 3,500 | Sundry Debtors 26360 Capital 60,000 | Stock 39,300 Furiture 6,900 7000. 70,000Financial Accounting 22.7 During the year ended 31st March, 2003 his drawings amounted to Rs 15,000. He also withdrew goods worth Rs 600 for his personal use. On Ist July, 2002, 8. Roy transferred some of his houschold furniture to the business at a value of Rs 2,100, His assets and liabilities as on 31st March, 2003 were: tiaites [Re sss RS Sundry Gredtors 18,500 | Cash 6580 Accrued exoensas | 4300) Sundry Debtors 36.800 Stock 40,320 Furiture 80900 Prepaid Rent 400 Furiture is to be depreciated @ 10% p.a. and a provision is to he created on debtors @ 5%, Interest 5% to be allowed on capital as at the beginning of the year. Ascertain the profit or loss for the year ended 31st March, 2003 and prepare the Statement of Affairs as on that date. Solution Ascertainment of Ciosing Capital (before adjustments) Tibiiies rs Assets Bs ‘Sundry Greens 18,500 | Cash 8580 Accrued expenses 4,30 | Suny Debiors 35,900 ‘losing Canta (banding fours) 70:30 | Stock 40.20 Furriture Prepaid Rent Statement of Profit and Loss of Sri S, Roy for the year ended 31st March, 2003 ‘Gosing Capital (as above) ‘Add: Drawings during the year : Cash 15,000 Goods e00| 15,600 25.900 ‘Less: Capita introduced during the year 2.400 Opening Capital (as given) 50,000 | 52,100. Profit before adjustments 33.800 ess: Adjustments {) Depreciation on Future (Rs 680+ 158) 28 (i Provision for doubtful debts 1845| 2,608 ‘Not profi for the period 307 Less: Interest on Capital (5% of Rs 50,000) . 2.500 Net profit : 23.807 Statement of Affairs of Sri S. Roy as at 31st March, 2003 Liabilities RS RT ‘Assets RS Rs. ‘Opening Capital 0,000 Furie (RS 6900+ Rs 2.100) 8,000 ‘Add New Capita introduced 2,100 Less: Depeciaion a8] 9,82 ‘Add: Interest on Capital 2.500 Stock 40.320 ‘Ad: Profit forthe year (Net) 28,607 ‘Sundry Debiors 36.900 83,207 Less: Provision for Doub debts 45 | 35,055, Less: Drawings 15,60 Prepaid rent 400 ‘Accrued expenses Cash 6.500 Sundy Creitors ta W507 illustration 4 R had Rs 3,00,000 in bank on Ist January 2002 when he started his business. He closed his accounts on 31st March, 2003. Hiis single entry books (in which he did not maintain any account for the bank) showed his position as follows: ‘Casi and ‘Steck in rade Debiors Creditors [eus.2002 [373.2008 2000] 3,000 19000} 28,000 4,000} 2,000 so00 | 3.000 ‘On Ist February, 2002, he began drawing Rs 700 per month for his personal expenses from the Cash Box of the business.22,8 Single Entry System His account in the bank had the following entries : Deposts_ | Witdrawals 4.4.2002 300,000 — 1142002 to 31.3.2002. —| 223,000 4.4:2000 to 313.2008 230000] 270,000} The above ithdrawals included payments by cheques of Rs 2,00,000 and Rs 60,000 respectively during the period from Ist January, 2002 to 31st March, 2002 and from Ist April, 2002 to 31st March, 2003 for the purchase of machinery for the business. The deposits after Ist January, 2002 consisted wholly of sale price received from customers by cheques. Draw up R’s Statement of Affairs as at 31st March, 2002 and 31st March, 2003 respectively and work out his profit or loss for the year ended 31st March, 2003, Solution Ascertainment of Opening Capital (31st March, 2002) abies Rs ‘Assels Rs. ‘Sundry Creditors 5,000 | Cashin hand 2,000 Capital (Balancing figure) 294,000 | Cash atbank 300,000 Less: Withdrawals” 2.23,000 Stock n rade Debtors Machinery a) Ascertainment of Closing Capital (31st March, 2003) — eas 80h Sundry Credo 3.000 | Cashin hand Capital (baancing figure) 3,28,000 | Cash et bank (Note 2) Stockin rede Sundry Debiors Machinery __ [33500 : Statement of Profit and Loss of R_for the year ended 31st March, 2003 Closing Capi (as above) ] 326,000 ‘Add: Drawings dung the year (Rs 700 x12) | 8,400 | 336.400 Less: Opening Capi (as above) 234,000 Net profit forthe year 2400. [Notes : 1. The above profit of Rs 42,400 is camed by R subject to depreciation on machinery; 2. Opening balance + Deposit - Withdrawals = Rs 77,000 + 2,30,000 ~ 2,70,000 = Rs 37,000, Mlustration 5 On 1.1.2001, the assets and liabilities of Sougata Roy, a retailer, were as follows : Building Rs 5,00,000; Motor van Rs 1,00,000; Furniture Rs 80,000; Stock Rs 60,000; Debtors Rs 40,000; Provision for Doubtful Debts Rs 4,000; Cash Rs 2,500; Creditors Rs 42,000; Loan Rs 1,00,000; Bank Overdraft Rs 15,000. The following information was available at 31.12.2001 : (1) Stock Rs 60,000; Debtors Rs 50,000; Cash Rs 4,500; Creditors Rs 37,000; Loan Rs 80,000; Bank Overdraft Rs 10,000. (2) No fixed assets had been bought or sold during the year. (3) _ Fixed assets are to be depreciated as follows : ) Motor van by 20% p.a.; and (ii) Furniture by 25% p.a (@)__ A provision for doubtful debts is to be maintained at 10% of year-end debtors. (5) Sougata withdrew Rs 6,000 p.m, for his own use. (6) On 1.3.2001, Sougata brought further Rs 30,000 as capital into the business. ‘You are required to prepare a Statement of Profit and Loss for the year ended 31.12.2001 and a Statement of Affairs a on that date. Solution Opening Statement of Affairs as on 1.1.2001 Labifies —— Rs] ~ Assets Rs ‘Opering Capial (Balancing gure) 500 | Buln 590,000 Pegs Cora aang fave) 3.000 | Motor van 410,000 Creditors 4200 | Fumture 0,000 Bank Overdraft, 15,000 | Stock 60,000Financial Accounting 22.9 ~ Debiors 40,00 Less: Provision for doubfl debts 4.000, 36,000 Cash 776500 : Closing Statement of Affairs as on 31.12.2001 abies Assais BS Ciosing Capital (Balancing figure) Balding 5.00000 tan oP aera fo ‘Motor van *00,000 Creditors Furiture ‘80.000 Bank Overdrat Stock 60,000 Debiors 50000 Cash 4500 734.500 Statement of Profit and Loss of Sougata Roy for the year ended 31st December, 2001 Particulars Rs FS Closing Capital fas above) 687500 ‘Add: Drawings (Rs 6,000 x 12) |_“7zp00| 733.500 Les : Opening Capital as above) 521500 Capilal introduced during he year 30}000 | _6351.500 Profit before Adjustments 68,000 ‘ess: Adjustments — (1) Depreciation on motor vehicles 20,000 (2) Depreciation on funiture 20,000 (3) Provision for doubtful debts 5.000| 45000 Net Profit forthe year 43,000 Final Statement of Affairs of Sougata Roy as at 31st December, 2001 Liabies Rs Asses Rs Capital: Buicing . 00,000 Opening balance 6.21.50 Meter van 4,00,000 ‘Add : Capital introduced Less : Depreciation 20,000 | 40,000 Not prot Furniture 80,000 Less : Depreciation 20.000 | 60,000 Less : Drawings Stock 60,000 oan Debtors 50,000 Creditors ‘Less : Provision for doubtful debts _5000 | 45,000 Bank Overdraft Cash 4,500 748,500 Hlustration 6 ‘The following balances are obtained from the books of Mr Chetri as on 31st March, 2003 and 31st March, 20 Barioulare ‘a2008 [S100 Perioulers Bi.g.2000 [91.9.2002 ‘Sundry Creditors 1,50,000| 220,000 | Sundry Debios 1,70,000 | 160,000 Fumiture and Fixtures 1,26,000 | "92,000 | Stock . 75,000} 50,000 Oifice Equipments ‘95,400 | 96,000 | Bis Payable 10900} 48,000, Outstanding Salary 6,000 |". 2,000 | Outstanding Audit Fees 4500| 1,000 Motor Car 75,200} 94,000 | Outstanding Printing 560) ‘200 ‘Advance Salary 4,500] 2.500 | Outstanding Rent 2500] 1,200 Prepaid Insurance 500) "300 | Outstanding Repairs 4/200 5 Cash end Bank 75000| 90,000 ‘The following information is relevant forthe year 2002-03, (i) Cash drawings as per books during 2002-03 amounted to Rs 30,000. ii) He sold one building at New Delhi for Rs 2,00,000 out of which he invested Rs 50,000 in his business. (iii) One sales invoice amounting to Rs 10,000 dated 2.9.2002 was omitted in the books. iv} Outstanding audit fees on 31.3.2003 includes Rs 300 for 2001-02. (v) Cash collected from debtors Rs 12,000 was deposited in his private Bank Account. ‘You ure required to show by means of a statement as to how would you arrive at the Net Profit for the year ended 31.3.2003 if the accounts were maintained on cash basis.22.10 Single Entry System Solution Chetri Statement of Profit and Loss for the year ended 31st March, 2003 (under cash basis) Paricuars Giosing Capital (Note #) ‘Aga: Drawings (Rs 30,000 + 12,000) Less: Capital introduced 50,000 Opening Capital (Note 1) 34,200 391,800 Not Profit on Accrual Basis 98,040 ‘Add: Ouistancing Expenses as on 31.3:2003 : Salary — RS 6,000; Aull fees — Rs 1,200 (Rs 1,500 ~ 300); Printing — Rs 560; Rent — Re 2,500; Repairs — Rs 1,200 11,460, ‘Add; Expenses paid in advance on 31.3.2002 : ‘Advance salary — Rs 2,500; Prepaid insurance — Rs 300 Less: Outstanding expenses as on 3132002 Salary — Rs 7,000; Aut fees — Rs 700 (Rs 1,000 ~ 300); Printing — Rs 800: Rent —~ Rs 1.200 Less: Expences pa in advance on 31 3.2003 ‘Advance Salary — Rs 4,500; Prepaid Insurance — Rs 500 7 Net Profit on Cash Basis Working Note: _(1) Ascertainment of Opening and Closing Capital (figures in rupees) abies Bis2002 Assets [sister [313.2008 ‘Capital (Balancing gure) 341,800 Furiture and Fires | sooo] 4.26.00 ‘Sundry Creditors 220,000 | ‘fice Equipments | 95.400 Bils Payable 18.000 | Motor Car | 75,200 ‘Outstanding Salary 2000 | Stook 75,000 ‘Outstanding Audit Fees 4,000 Sundry Debtors +.60,000 Outstanding Printing 800 Cash and Bank 76,000 Outstanding Rent 1300) 2,500) Advance Salary 4500 Outstanding Repairs =| 1200) Prepaid insurance 500, Seap00 | 620,600 520600 ~ * Final balance of debtors: Balance as given Rs 1,70,000 + Sales omitted Rs 10,000 — Collections from debtors Rs 12,000 = Rs 168,000. ‘Tutorial Note : Opening capital and Closing capital can be ascertained on cash basis, ignoring outstanding expenses and prepaid expenses as well as advance salary. In that ease, opening capital will be Rs 3,44,000 and closing capital will be Rs 4,55,600. However, profit will be the same, ie, Rs 1,03,600; Rs (4,55,600 + 42,000 ~ 3,4,000 ~ 50,00). Mlustration 7 ‘ Mr Kothari does not keep complete records of his business but gives you the following information: His assets on 31.3.2003 consisted of Machineries Rs 1,50,000; Furniture Rs 60,000; Motor Car Rs 40,000; Stock-in- trade Rs 50,000; Debtors Rs 80,000; Cash in hand Rs 12,000 and Cash at Bank Rs 30,000; Creditors on that date amounted to Rs 1,20,000. (On further information received, you come to know that: On 1.10.2002 he purchased a new machinery costing Rs 50,000. Sales are made for cash as well as on credit. There is no cash purchases. He always sells his goods at cost plus 259%. Cash sales for the year 2002-03 were accounted for Rs 80,000. During the year 2002-03 collection from debtors amounted to Rs $,00,000 and a sum of Rs 4,25,000 was paid to creditors. He obtained a Bank loan for Rs 50,000 on 1.2.2002. The entire amount was repaid in February, 2003 with interest Rs 2,500. In November, 2002 his life insurance policy for Rs 50,000 became matured and the same was invested in the business. His drawings were Ks 2,300 p.m. all through the year. ‘On 1.4.2002 he had Rs 1,500 as cash in hand and balance at bank for Rs 40,000. Debtors and Creditors on that date amounted to Rs 60,000 ad Rs 90,000 respectively. Provide depreciation on Machineries @ 15% p.a., on Furniture @ 10% p.a. and on Motor Car @ 20% p.a. Mr Kothari requests you to prepare a statement of Profit & Loss for the year ended 313.2003.Financial Accounting 22.11 Solution Working Notes (1) Ascertainment of Opening Capital Tiabiities- ____ Assets Creditors ‘Machineries (Note 8) ‘Bank Loan Furniture ‘Outstanding Interest (Note 7) ‘Motor Car Capital {balancing figure) 2,236,083 | Stock in trade (Note 5) Debs Cash nand Cash at bank 76500 @)Ascertainment of Closing Capital (before adjustments) Tables Assets Gadi Wadhinerkes Caplfbaiancing fie) 32.000 | Fumie Motor Car Stockin ade { Debtors Cashinhand |__| cach at rane 000 Dr. (3) Creditors Account tT Paiaias Tate Paes 7 (To BarkAe 25000 | 12002 | By Balance Wd s13.2me | To Balance cfd 420000] "°°? | By Creat prcheses (balancing fue) 545,000 Dr. (4 Debtors Account Dae] Parle dae] Paricuers T Ta2002 | ToSalance bid 7 [By Bank Ae 7 ‘To Crecit sales (balancing figure} 31.3.2003 | By Balance od (&) Ascertainment of Opening Stock : Total Sales = Credit sales + Cash sales = Rs 5,20.000 + Rs 80.00) = Rs 6,00.000, Gross profits 254 en cos of 20% on sles. Therefore, cst of goods sold is 80% of Sales = 80% of Rs 6,00,000 = Rs 4.80.00. ‘We know, Opening stock + Purchases = Cost of goods sold + Closing stock Or Opening Stock + Rs 4,55,000 = Rs 4,80,000 + Rs 50,000; Or Opening Stock = Rs 75,000. or. {6) Machineries Account Date | Particulars Date Particulars. 44.2002 | ‘To Balance bid (balancing figure) 1,00,000 [37.3.2003 | By Balance old ToBank Ac 50.000 | 4,50,000, (7) Statement showing allocation af interest ‘Total interest from 1.2.2002 to 1.2.2003 = Rs 2,500; Therefore, interest from 1.2.2002 to 31.3.2002 = Rs 417; ‘And, interest from 1.4,2002 to 1.2.2003 = Rs 2,083, (8) Depreciation on Machinery On Rs 1,00,000 @ 15% for 1 year = Rs 15,000-+ On Rs 50,000 @ 15% for 1/2 year = Rs 3,750; Therefore, total = Rs 18,750. Statement of Profit and Loss of Kothari for the year ended 31st March, 2003 Rs Giosing Capital . : Ena) ‘Add: Drawings forthe period (Rs 2,500 x 12) 0 332.000 ‘Less: Opening Capital 236.083, New Capita introduced 000 | 286,013, Profit before adjustments y sr ‘Less: Adjustments {) Depreciation on Machinery @ 15% pa. 18750 epreciaon on Fumie @ 10% oa 6.000 Depreciation on Motor Car @ 20% pa, goo |_32,750 Het Proft T316722.12 Single Entry System Single Entry System as Applied to Partnerships When the single entry system is adopted by a partnership firm, the calculation of profit or loss is made along the lines indicated before. The Statement of Affairs would yield the amount of the combined capital of the partners: sind the Statement of Profit and Foss would show the profit made during the year, which should be divided among the partners in agreed proportions. Therefore, in case of a partnership firm, the Statement of Profit and Loss will be as under : ‘Statement of Profit and Loss for the year ended ... ‘Combined closing Caplial T ‘Add: Combined drawings forthe period Less: Combined opening Capital Combined new Capital introduced Profit before adjustments Less Adjustments {i Depreciation (i) Provision for Doubtful debs ete Net profit forthe period Less: Appropriations (i) Salary ofthe partners os fi Interest on Capital 5 ‘Add: interest on Drawings Divisibte profit Mlustration 8 ‘Akash snd Bikash are partners in a firm sharing profits and losses in the proportion of 3 and 2. They keep their books on the Single Entry System. On 31st December. 2001. the following Statement of Affairs was extracted from their books:- abies Rs = RS Piant & Machinery 30,000 25,000 | Stock 20,000 20,000 } Sundry Debtors 35,000, Loan — Bikash 25,000 | Cash at bank 45,000 Suncly Creditors 30,000 700,000} 790000 On 31st December, 2002, their assets and liabilities were: Sundry Debtors Rs 40,000; Sundry Creditors Rs 25,000; Plant & Machinery Rs 50,000: Stock Rs 30,000; Bills Receivable Rs 5.000; Cash at Bunk Rs 25,000; Loan —Bikash Rs 25.000. ‘You are required to prepare a Profit and Loss Statement for the year ended 31st December, 2002 and a Statement of Affairs as a¢ that date after taking into consideration the following: (a) Plant and machinery is to be depreciated by 10% p.a. (bj Stock is to be reduced to Rs 25.000. (c) A provision for bad debts to be raised at 5% on Sundry Debtors. (a) Interest on loan is to be allowed at 6% p.a. (e) During the period Akash and Bikash draw Rs 5,000 and Rs 3,000 respectively. ‘Solution Ascertainment of Combined Closing Capital (Before adjustments) = Tabilies iseeesees (atte aie) es Assets 1 Sundry Creators 25,000} Sundry Debiors 40,900 Loan ~ Bikash 25,000 | Pant & Machinery 50,000 Capital (balancing fue) 00,000} Stock 30,000, Bis Receivable 5000 Cash a bark 25000 5000. a 50,000, Statement of Profit and Loss of Akash and Bikash for the year ended 81st December, 2002 As Cirnbined dosing Cepia as above) rn 0) ‘Add: Combined Drawings during the year (Rs 5,000 + Rs 3,000) 8,000 | ps.060- Combined Opening Capital (Rs 2,000 + Rs 20,000) . 45000 Profit before adjustments 63,000