Single Entry System

According to Kohler “a single entry system is a system of book keeping in which

as a rule only records of cash and personal accounts are maintained. It is
always incomplete double entry varying with circumstances”
Objectives of single-entry system
• To record business transactions.
• To prepare trial balance.
• To know profit or loss.
• To know financial position
• To open account and to obtain balances
Features of single-entry system
• It does not follow double entry system
• It is an incomplete record
• It is inaccurate and unscientific.
• It is flexible.
• It is suitable to small concern
• It maintains personal and cash accounts only.
Advantages / Merits of single entry system
1. It is a simple method of accounting.
2. It is less costly.
3. It is highly flexible.
4. It is suitable for small business.
5. It is possible to record transactions quickly
Limitations / Demerits / Defects of single entry system
1. It is incomplete and inaccurate.
2. It is unscientific and unsystematic.
3. It is not suitable for large business.
4. It is not acceptable to income tax authorities.
5. It is difficult to value goodwill of the business.
6. It is difficult to detect errors and frauds.
Difference between single entry and double entry system
Single entry system Double entry system
One aspect of Both the aspect of
transaction is recorded. transactions are
recorded.
It is incomplete and It is complete and
inaccurate. accurate
It is suitable for small It is scientific and
business. systematic.
It is unscientific and It is suitable for all
unsystematic. business.
It is less costly. It is costly.
Trial balance cannot be Trial balance can be
prepared. prepared.
Only personal accounts Personal, real and
are maintained. nominal accounts are
maintained.

Types of single entry system

1. Pure single entry system
Under this system, no subsidiary books are maintained. Personal
accounts of debtors and creditors are maintained.
2. Simple single entry system
Under this system, cash book and personal accounts of debtors
And creditors are maintained.
3. Quasi single entry system
Under this system, personal accounts, cash books and some
Subsidiary books are maintained.
Statement of profit and loss
It is a statement prepared under single entry system in order to find out
amount of opening capital or closing capital of the business.
Memorandum Trading Account
It is the trading account prepared to find out missing figures Such as opening
stock, closing stock, etc. It is not prepared According to double entry principle.
Difference between profit and loss account and statement of Profit and loss
Profit and loss A/c
It is an account.
It is prepared under double
entry.
It starts with gross profit or
loss.
It shows exact profit or loss.
It gives reason for earning
profit or incurring loss.
Statement of Profit and loss
It is a statement.
It is prepared under single
entry.
It starts with closing capital.
It shows approximate profit
or loss.
It does not give reason for
earning profit or incurring
loss.

Statement of affairs
It is a statement of assets and liabilities prepared under single entry system to ascertain the
financial position of the business.

Difference between statement of affairs and balance sheet

Statement of affairs Balance sheet

It is prepared under single
entry system.
It is not reliable.
It is prepared by small
business.
It is prepared to find out
capital and net profit or
loss.
Trial balance is not prepared
before its preparation.
It is prepared under double
entry system
It is reliable.
It is prepared by big
business.
It is prepared to ascertain
financial position.
Trial balance is prepared
before its preparation

Conversion method
The process of conversion of single entry to double entry is called conversion method. It
makes it complete, accurate and scientific recording of transactions. .
Objective of conversion
To overcome defect of single entry system.
To have complete record of transactions.
To ascertain correct profit or loss.
To ascertain true and fair financial position.
Company
According to Lord Justice “Company is an artificial person created by law with a
perpetual success and a common seal.”
Characteristics of a company
1. It is a voluntary association of persons.
2. It has a separate legal entity.
3. It has perpetual succession.
4. It is an artificial person created by law.
5. It has a common seal.
6. It is managed by board of directors.
7. Shares are freely transferable.
Share capital
The capital of a company is called share capital.
Share
The share capital of a company is divided in to small and equal Units. Each unit
is called a share.
Shareholder
A person who buys a share is called shareholder or member of The company.
Types of share capital
1. Registered Capital
The capital with which a company is registered is called Registered capital. It is also
known as nominal or authorized Capital.
2. Issued Capital
It is a part of authorized capital which is issued to the public for Subscription.
3. Subscribed Capital
It is a part of issued capital which is subscribed by the public.
4. Called up Capital
It is a part of subscribed capital which the directors have called From the
shareholders.
5. Paid up capital
It is a part of called up capital which is actually paid up by the Shareholders.
6. Reserve capital
It is the amount of the capital which is not called by the Company except in the
event of winding up.
Difference between reserve capital and capital reserve
Reserve capital
It is created out of
uncalled capital.
It is not compulsory.
It is used only at the
time of winding up
It is not disclosed in the
balance sheet.
Special resolution is
required.
Capital Reserve
It is created out of
capital profit.
It is compulsory.
It is used at any time
during the life of the
company.
It is disclosed in the
balance sheet.
No special resolution is
required.

Kinds / Types of shares

1. Equity Share capital
2. Preference Share capital

Equity Share
Shares which are not preference shares are called equity Shares. These are ordinary shares.
Preference shares
Preference shares are those shares which carries preferential Right with respect to payment
of dividend and repayment of Capital.

Types of preference shares

1. Cumulative preference share.
2. Non-cumulative preference shares.
3. Participating preference shares.
4. Non-participating preference shares.
5. Convertible preference shares.
6. Non-convertible preference shares.
7. Redeemable preference shares.
8. Irredeemable preference shares.

Sweat equity shares

Sweat equity shares are those shares issued by the company to Its directors and employees
at a discount or for consideration Other than cash for providing know how or making
available Rights in the nature of intellectual property rights or value Additions.
Difference between equity shares and preference shares
Equity Shares Preference Shares
It is an ownership security It is a hybrid security.

Dividend rate is not fixed Dividend rate is fixed.

Nominal value is lower. Nominal value is higher.

Expenses on issue are lower Expenses on issue are higher
Dividend is paid last. Dividend is before paying
equity dividend.
Employees Stock Option Scheme (ESOS)
1. Under this scheme, the company grands an option to the
2. employees to acquire shares at a future date with
3. predetermined price.
Objectives of ESOS
1. To develop the feeling of participation among employees.
2. To attract efficient and skilled employees of the company.
3. To motivate efficient and skilled employees of the company.
4. To encourage to serve the company.
5. To provide long term resources to the employees.
Stock
A set of shares put together in a bundle is called stock.
Difference between Shares and Stock
Shares Debentures
It has nominal value It has no nominal value
It has distinctive numbers It has no such number
It is partly or fully paid up It is always fully paid up
It can be issued directly It cannot be issued directly
It transferred in multiple of It transferred in fractions
one
Raising of capital/ Issue of shares
1. Private placement
2. Right issue
3. Public offer
1. Private placement
Private placement is the issue of securities of a company direct To one investor or
small group of investors.
2. Right issue
It is an issue of shares to the existing shareholders in proportion To their existing
shareholding.
3. Public issue
Public issue means selling of shares or securities to public by Issue of prospectus.
Minimum subscription
It is the minimum amount of capital fixed by the directors to be Raised from the members
by way of subscription.
Under subscription

Sometimes, the application for shares will be less than the Number of shares issued. This is
called under subscription of Shares.
Over subscription
Sometimes, the application for shares will be more than the Number of shares issued, this is
called over subscription of Shares.
Calls in arrears
Some shareholders may fail to pay allotment money or call Money. The unpaid allotment or
call money is called calls in Arrears.

Calls in advance
Amount received by a company before calls are made is called Calls in advance
Pro rata allotment
It refers to the allotment of shares in proportion of the shares Applied for.
Annulment of forfeiture
The cancellation of forfeited shares is known as annulment of Forfeiture.
Surrender of shares
The voluntary return of shares to the company by the Shareholder is called surrender of
shares.
Forfeiture of shares
It means cancellation of shares due to non-payment of Allotment money or call
money within a specified period.
Procedure of forfeiture of shares
1. Memorandum to each defaulter.
2. List of defaulters.
3. Notice to the defaulters.
4. Resolution for forfeitures.
5. Information of forfeitures.
6. Removal of names.
7. Transfer of forfeited amount.
Difference between calls in arrears and calls in advance
Calls in arrears Calls in advance
It is the amount called up by It is the amount not called
the company up by the company
It shows a debit balance. It shows a credit balance.
It is the amount due to the It is the amount due from
company from the the company to the
shareholders. shareholders.
The maximum rate of The maximum rate of
interest Is 10% p.a. interest is 12% p.a.
It is the liability of the It is the liability of the
shareholders. company.
Difference between and forfeiture and surrender of shares
Forfeiture of shares Surrender of shares
It is made by the company. It is made by the shareholders.
It is carried out by directors. It is depend on the
shareholders will
When the shareholders fail to Not compulsory.
pay allotment or call money,
then forfeiture compulsory.
The directors forfeit the share The shares are returned to the
of shareholders company by the shareholders.
Forfeiture rules are mentioned No rules are mentioned in
in table A. table A.
Debenture
Debenture is an acknowledgement of debt issued by a company Under its
common seal.
Bond
It is a fixed obligation to pay that is issued by a corporation or Government
entity to investors.
Difference between bond and debenture
Bond Debenture
It is issued without It is issued at predetermined
predetermined rate of interest. rate of interest.
It is issued at maximum It is issued at lesser discount.
discount.
Bonds are less risky. Debentures are at high risk.
It is secured by collateral. It is not secured by collateral.
It is mostly issued by It is mostly issued by private
government. companies.

Charge
It simply refers to mortgage. There are two types of charge-Fixed charge and
floating charge.
Nature of debentures
1. It is a debt instrument
2. It represents loan capital
3. It carries fixed rate of interest.
4. It carries no voting right.
5. It is a long-term finance.
6. It is generally secured.
7. It is issued under a common seal of the company.

Difference between shares and debentures

Shares Debentures
Owned capital Borrowed capital
Dividend is paid on shares. Interest is paid on debentures.
The rate of dividend varies The rate of dividend is fixed.
Unsecured Secured
Shareholder is proprietor. Debenture holder is creditor.
Terms of issue of debentures
1. Issue of debentures at par
When debentures are issued at a price equal to their face value is called
issue of debentures at par.
2. Issue of debentures at premium
When debentures are issued at a price higher than their face Value is
called issue of debentures at premium.
3. Issue of debentures at discount
When debentures are issued at a price lower than their face Value is
called issue of debentures at discount.

Accounting Standards (AS)

Accounting standards are certain set of rules and guidelines for Financial
reporting.
Role/Objectives of accounting standards
1. To provide information.
2. To harmonize different accounting processes.
3. To enhance the contents.
4. To communicate uniform results.
5. To improve reliability of the financial statement.
6. To facilitate comparison.
Benefits/Advantages of Accounting Standards
1. Credibility and reliability of financial statements.
2. Uniformity.
3. Elimination of ambiguity.
4. Comparison.
5. Determination of managerial accountability.
6. Raises the standard of auditing.
7. Useful to shareholders, investors, researchers etc.
Accounting Standards Board of India (ASB)
The institute of Chartered Accountants of India established Accounting
Standards Board on 21st April 1977 to harmonies The diverse accounting
policies and practices in India.
Objectives and Functions of Accounting Standards Board
To determine areas in which accounting standards to be Develop.
To formulate accounting standards.

To review the accounting standards at regular intervals.

To provide time to time interpretation and guidance.
To give clarification on issue arising therefrom.
Need and importance of global accounting standards

1. Development of Multinational Corporation.

2. Growth of international capital market.
3. Legislative requirement.
4. Increasing investors’ confidence.
5. Better analysis of financial data.
6. Ease in listing of securities.
International Accounting Standards
It is a set of internationally agreed principles and procedures Relating to the way that
companies present their accounts.

International Accounting Standards Committee (IASC)

It was an independent private sector organization. The IASC Aimed to achieve uniform
accounting principles which Businesses and organizations make use of for the purpose of
Financial reporting globally.

International Accounting standards Board (IASB)

IASB is an independent accounting standard setting body based In London. It is committed
in developing a single set of high Quality, understandable and enforceable global accounting
Standards.

Role of IASB in developing IFRS

IASB is committed in developing high quality and Understandable global accounting
standards.
Before developing an accounting standard, IASB has to make A lot of groundwork.

IASB conduct public hearing at the time of developing Accounting standards.

IASB issued exposure draft (ED) before developing Accounting standards.
IASB issues guidance and interpretations on IFRS.
IASB is playing a vital role in the harmonization of accounting Policies and practices across
the global by issuing IFRS.
International Financial Reporting standards (IFRS)
IFRS are principles-based standards, interpretations and the Framework
adopted by the IASB. Thus IFRS are accounting Standards developed by IASB.
Features of IFRS
1. These are global accounting standards.
2. These are principle based and not ruled-based.
3. IFRS are developed and maintained by IASB.
4. They ensure high quality and transparency.
5. IFRS ensure comparability.
6. IFRS provides uniformity.
Process of setting IFRS
1. Setting the agenda.
2. Planning the project.
3. Developing and publishing discussion paper.
4. Developing and publishing exposure draft.
5. Developing and publishing the standard.
6. Procedures after a standard is issued.
IFRS Interpretation Committee (IFRSIC)
This is a committee for IFRS interpretations. The objective of The committee is
developing interpretations for the IFRS issued By the IASB.
National Financial Reporting Authority (NFRA)
NFRA is an independent regulatory body to assist in the framing And
enforcement of legislation relating to accounting and audit.

Need / Role / Functions of NFRA

1. Monitor and enforce compliances of accounting standards.
2. Monitor and enforce compliances of auditing standards.
3. Formulation of accounting and auditing policies.
4. Oversee the quality of services of the professionals.
5. Suggest measures for improvement in the quality of service.
Standard Interpretation Committee (SIC)
SIC interpretation were previously issued by the standards Interpretation committee, and
were subsequently endorsed by IASB.

Financial Elements
Financial elements simply mean the elements of financial Statement.
Classification / Types of financial Elements:
The five financial elements are

1. Assets
2. Liabilities
3. Equity
4. Revenue
5. Expenses
1. Assets
These are items of economic benefit that are expected to yield Benefits in future
periods. Examples are accounts receivable, Inventory, and fixed assets.
2. Liabilities.
These are legally binding obligations payable to another entity Or individual.
Examples are accounts payable, taxes payable, And wages payable.
3. Equity
This is the amount invested in a business by its owners, plus any Remaining retained
earnings.
4. Revenue
This is an increase in assets or decrease in liabilities caused by The provision of
services or products to customers. It is a Quantification of the gross activity
generated by a business. Examples are product sales and service sales.
5. Expenses
This is the reduction in value of an asset as it is used to Generate revenue. Examples
are interest expense, Compensation expense, and utilities expense.

Indian Accounting Standards (Ind AS)

Ind AS provides principles for recognition, measurement, Treatment, presentation and
disclosure of accounting Transactions in financial statements prepared asper Indian
Accounting standards.
Procedure for formulating Accounting Standards (Standard Setting process in India)

1. Determination of areas of accounting standards.

2. Constitution of study group.
3. Dialogue with various representatives.
4. Preparation of exposure drafts.
5. Issuance for circulation.
6. Consideration of views and drafting the standards.
Difference between IFRS and Ind-AS

IFRS
IFRS is based on fair value
concept
IFRS are developed by IASB
IFRS followed by 144 countries
across the world
Proposed dividend is not
required to be reflected in
financial statements under IFRS
Under IFRS prior period items
will be given retrospective effect
in opening equity
Under IFRS, EPS has to be
Disclosed separately
Ind-AS
Ind-As is based on historical cost
Ind-As are developed by MCA
Ind-As followed only in India
Proposed dividend is required to
be reflected in financial
statements under AS
Under As, it is not so
This is not required under Ind-As

Financial Accounting Standards Board (FASB)

It is the independent, private sector non-profit organization Based in Norwalk, USA. It
establishes financial reporting Standards for public and private companies.

Functions of FASB
To establish generally accepted accounting principles within USA.
To prepare research projects, public hearing etc.
To prepare discussion memoranda, comment letters etc.

To propagate the pronouncement of various government Agencies and professional

bodies.
Generally Accepted Accounting Principles (GAAP)
GAAP are commonly followed and accepted set of rules, Procedures and guidelines adopted
by security and exchange Commission for reporting financial statements.
Conceptual Framework of IFRS
Conceptual framework means theoretical principles which Provide the basis for the
development of accounting standards.
Elements of Conceptual Framework

1. Objectives 4. Qualitative characteristics.

2. Users 5. Elements of financial statements.
3. Underlying assumptions. 6. Concept of capital maintenance.
Recognition of elements of financial statements
Recognition is the process of recording items in the financial Statements.
Recognition Criteria / Principles

• Assets:
An asset is recognized in the balance sheet when it is Probable that the future economic
benefits will flow to the Entity and the asset has a cost or value that can be measured
Reliably.

• Liabilities:
A liability is recognized in the balance sheet when It is probable that an outflow of resources
embodying Economic benefits will result from the settlement of a present Obligation and
the amount at which the settlement will take Place can be measured reliably.

• Income:
Income is recognized in the income statement when An increase in future economic
benefits related to an increase In an asset or a decrease of a liability has arisen that can be
Measured reliably.
• Expenses:

Expenses are recognized when a decrease in future Economic benefits related to a decrease
in an asset or an Increase of a liability has arisen that can be measured reliably.

Financial statement
These are formal records of the financial activities and position Of a business.
Types of Financial statement
1. Balance sheet
2. Statement of profit or loss
3. Statement of changes in equity.
4. Statement of cash flows.
5. Notes for explanatory information.
Key Requirements for presentation of financial statements / Features of
financial statements
1. Going concern. 4. Offsetting
2. Accrual basis of accounting. 5. Frequency reporting.
3. Materiality. 6. Comparative information.
Statement of financial position (SOFP)
SOFP is a statement of assets and liabilities of a business Enterprise on a particular day.
Statement of profit/loss (SOPL)

A statement of profit and loss is an income statement of a Company. It shows the

company’s revenue and expenses during A particular period.
Statement of Changes in equity A statement of changes in equity is a financial statement
that Measures the changes in owner’s equity for a specified Accounting period.

Fixed assets Long term tangible property or equipment that a firm owns and Uses in its
operations is called fixed assets.
Eg: Land and building, Plant and machinery, Computer
Current assets are those assets which are used within the Period of one year.

Eg: Cash in hand, Cash at bank, Inventories

Intangible assets are those assets which cannot be touch, feel And see. Which do not have
physical existence.
Eg: Copyright. Patent, Trademark
Financial assets Financial assets is a nonphysical asset whose value is derived From a
contractual claim such as bank deposits, Bonds etc…
Biological assets Biological asset is defined in Ind AS 41 as living animal or plant.
Contingent asset It is a type of asset, its economic benefits depends on some Uncertain
future events.

Contingent liabilities It is a type of liability that may be incurred by an entity Depending on

some uncertain future events.
Depreciation Decrease in the value of fixed assets due to obsolescence, wear And tear,
passage of time, etc.
Appreciation Increase in the value of fixed asset is known as appreciation.
Earnings Per Share (EPS) It is the interest of each ordinary shares of an entity in the Profit or
loss of the entity for the reporting period.
Diluted EPS The reduced EPS is known as diluted EPS.

Divisible profits are that part of profit which are available to Shareholders for dividend.
Dividend It is a part of profit which is distributed among its shareholders.
Proposed dividend It is a type of dividend recommended by board of directors After close
the books of account.
Interim Dividend It is the dividend paid by the company before the preparation Of final
account.
Final dividend It is the dividend which is proposed and declared at the end of The
accounting year after close of books of accounts.
Unclaimed dividend It refers to dividend not yet claimed by the shareholders.
Scrip dividend in case company does not have sufficient cash to pay dividend, Company may
issue promissory notes to shareholders. This is Called scrip dividend.

Corporate Dividend Tax (CDT) Tax payable by the companies distributing the dividend is
called Corporate dividend tax.
Reserve Reserve is the retention of the profit which is not for any Known liability.
Capital Reserve The reserve created out from the profit of capital nature is Known as capital
reserves.
Revenue Reserve The reserves created by the retention of a share of net profits For the
year are known as revenue reserve.
Provision It is the amount which is charged against profit or loss account For some uncertain
amount of known liability.

Miscellaneous expenditure It includes preliminary expenses, discount on issue of shares

And debentures, share issue expenses etc.
Pro-operative expenses These are those expenses which are incurred by a company After
the stage of incorporation till the time it starts its Operation.

Current tax The amount of income tax payable in respect of taxable profit.
Deferred tax It is the difference between deferred tax liability at the end of The period and
the same at the beginning of the period.
Deferred tax assets It is the amount of income tax recoverable in future period.

Deferred tax liabilities The amount of income tax payable in future period.
Preliminary expense These are expenses which the promoters of a company inquire At the
time of incorporating the company.
Difference between reserve and provision

Reserve
It is an appropriation of profit
It is made for unknown liabilities
It is created only for profit
It can be used to distribute as
dividend
Provision
It is a charge against profit
It is made for known liabilities
Creation of provision compulsory
It cannot be used to distribute as
dividend