CHAPTER 15 SINGLE ENTRY TECHNICAL KNOWLEDGE To undersiand the concept of single entry system in contrast to double entry system. To determine net income using the single entry method. To be able to prepare financial statements based on single entry records.CHARACTERISTICS OF SINGLE ENTRY The very heart of the accounting process is the an; the dual effect of each transaction on the basic ag model “Assets = Liabilities + Capital”. alysis of OUnting All transactions are normally analyzed and recorded in terms of debits and credits. This system is called the double entry system of bookkeeping A system of record keeping in which transactions are not analyzed and recorded in the double entry framework ig called a single entry system. Incomplete records are said to be maintained ona single entry basis. Under the single entry system, the records maintained are represented only by the so-called “bare essentials”. Normally, the records include a record of cash, accounts receivable, accounts payable, property, plant and equipment, and taxes paid. The major record under the single entry system is the cashbook. The cashbook is maintained showing all receipts and disbursemenis. And because in a single entry no specific accounts for the receipts and disbursements are debited or credited, only * description of the transaction is made. With respect to accounts receivable and accounts pay! 5 Pat only a list of customers and creditors is made with the! corresponding balances. 422single entry method Under the single entry method, the computation of net jncome or loss is simply to compare the capital or retained earnings at the beginning of the year and capital or retained earnings at the end of the same year after taking into consideration withdrawals or dividends and additional investments. ‘The difference is either net income or net loss. Any increase in capital or retained earnings is net income and any decrease in capital or retained earnings is net loss. The single entry method of determining net income or loss is also known as net assets approach or capital maintenance approach. Formula for proprietorship or partnership Capital, end of the year xx Add: Withdrawals xx Total xXx Less: Capital, beginning of year xx Additional investments eee ek Netincome (loss) x Formula for corporation Retained earnings, end xx Add: Dividends declared or paid F xx Other items that decrease retained earnings but not profit or loss ; Xx Total xx Less: Retained earnings, beginning x Other items that increase retained earnings but not profit or loss x BA Netincome (loss) 423Illustration 1 An entity provided the following data for the current yea, January 1 December 3) Total assets 7.000 O00 3000, 200 Total liabilities ae “800. 100 Additional investments 800000 Withdrawals 000 Computation of net income Capital, December 31 1,200,000 Add: Withdrawals — 800,009 2, 100,00 Total 000 Less: Capital, January 1 800,000 Additional investments 600,000 1,400,000 Net income 700,009 Capital is the excess of total assets over total liabilities, Illustration 2 An entity provided the following information in relation to retained earnings for the current year: Retained earnings — December 31 4,000,000 Retained earnings — January 1 4,500,000 During the current year, the entity issued 10% share dividend with par value of P2,000,000 and fair value of P2,500,000. At year-end, the entity declared a cash dividend of P3,000,000. Computation of net income Retained earnings ~ December 31 4,000,000 Share dividend at fair value ° 2,500,000 Cash dividend 3,000,000 Total 9,500,000 Retained earnings - January 1 4,500,000) Net income 000,000 ie ite thar dividend is recognized at fair value because iti 424ilustration 3 entity reported the following changes in quring the current year: account balances Increase @ecrease) sh unk receivable 1,500,000 Javentory 500,000 Prepaid expenses 2,000,000 Land ( 100,000) Accounts payable 5,000,000 E (1,100,000) Bonds payable Daca Share capital 4.000.000 Share premium 4.000 000 Dividend of P1,500,000 was paid during the year and that no other transactions affected the retained earnings. Inthe example, the retained earnings and shareholders’ equity at the beginning and end of the year cannot be determined. Thus, the procedure is to determine the effect of the changes in assets and liabilities on net assets whether the change in the asset or liability increases or decreases the net assets. Increases in assets and decreases in liabilities increase net assets while increases in liabilities and decreases in assets decrease net assets. 425Computation of net income Effect on net as, Increase Decreac® e Increase in cash 1,500,000 Increase in accounts receivable 500,000 Increase in inventory 2,000,000 Decrease in prepaid expenses 100,000 Increase in land 5,000,000 Decrease in accounts payable 1,100,000 Increase in bonds payable 4,000,009 ‘Total 10,100,000 4,100,009 Se Net increase in net assets (10,100,000 — 4,100,000) 6,000,000 Add: Dividend paid 1,500,000 Total 7,500,000 Less: Increase in share capital 4,000,000 Increase in share premium 1,000,000 5,000,000 5,000,000 Net income 2,500,000 ‘The dividend paid is added back to net assets because it decreased net assets but not representing profit or loss. ‘The increase in share capital and increase in share premium are deducted because they increased net assets but not representing profit or loss. 426preparation of financial statements me preparation of the incom, computation of individual reven eference to the cash receipts ‘anges in assets and liabilities, © statement involves the ‘ue and expense balances by and disbursements and the ‘he formulas used in convertin, afaccounting are useful and such computation: 'g cash basis to accrual basis formulas involve the following a. Sales », Purchases ¢. Income other than sales d. Expenses in general The preparation of the statement of financial position involves inventorying, counting and verification procedures to determine the nature and amount of most of the assets and liabilities, For example, cash could be determined by count and by examining bank statements. Accounts receivable and notes receivable could be summarized from unpaid sales invoices and promissory notes. Merchandise on hand, supplies and other inventories could be ‘ounted and their cost determined from purchase invoices. ‘The cost of property, plant and equipment could be established reference to deeds of sale and other documents evidencing ~ Swnership of title. “counts payable and notes payable could be determined from burchase invoices, memoranda, correspondence and even nsultation with creditors. Ornership equity or capital would be the difference between the value assigned to assets and liabilities. 427Illustration 1 i ing data obtained f Store provided the following OM the Beene cords for the current year. December $1 January 1 Cash ea 600,000 Notes receivable a 200,009 Accounts receivable 1,000, 800,000 Inventory 500,000 800,000 Equipment 550,000 600,000 Notes payable 250,000 350,000 Accounts payable 500,000 600,000 Accrued interest payable 20,000 40,000 Unearned rent income 20,000 60,000 The cashbook showed the following information: Balance, January 1 600,000 Receipts: Accounts receivable 1,500,000 Notes receivable 500,000 Cash sales 400,000 Rent income 80,000 Sale of equipment costing P100,000 and with carrying amount of P50,000 60,000 Additional investment 300,000 2,840,000 Total 3,440,000 Payments: Accounts payable 750,000 Notes payable 650,000 Cash purchases 300,000 Interest expense 50,000 Expenses 400,000 Equipment 200,000 Withdrawals 200,000 2,550,000 Balance, Di 10,000 Jecember 31 Ue Supplementary information Sales discounts granted to custo 50.08 a , Sales returns made by customers 1500 Accounte receivable written off as uncollectible sa chase discounts on accounts payable paid a 428solution tep is to determine th it phe first 5 @ capital balance at thé inning and end of the year. The formula is “total assets minus total liabilities equals capital balance”, December 81 January 1 Assets? Cash - 890,000 600,000 Notes receivable 600,000 200,000 ‘Accounts receivable 1,000,000 800,000 Inventory 500,000 800,000 Equipment 550,000 _ 600,000 Total 3,540,000 3,000,000 Liabilities: Notes payable 250,000 350,000 Accounts payable 500,000: - 600,000 ‘Accrued interest payable 20,000 40,000 Unearned rent income 20,000 60,000 Total 790,000 1,050,000 Capital balance 1,950,000 The net income may now be computed using the single entry formula for a proprietorship: Capital - December 31 2,750,000 Add: Withdrawals 200,000 Total 2,950,000 Less: Capital - January 1 1,950,000 Additional investment 300,000 2,250,000 Net income 700,000 Thus, the formal income statement must show net income of 700,000. The following computations are necessary for the preparation of the traditional income statement. 429Computation of sales Notes receivable ~ December 31 Accounts receivable — December 31 Collections of accounts receivable Collections of notes receivable Sales discounts Sales returns Accounts written off — bad debts Total Less: Notes receivable — January 1 200,000 Accounts receivable — January 1 800,000 Sales on account Cash sales Total sales Computation of purchases Notes payable — December 31 Accounts payable — December 31 Payment of accounts payable Payment of notes payable Purchase discounts Total Less: Notes payable - January 1 350,000 Accounts payable January 1 600,000 Purchases on account Cash purchases Total purchases Computation of interest expense Interest paid Add: Accrued interest payable ~ December 31 Total Less: Accrued interest payable - January 1 Interest expense 430 600,00, 1,000'009 1,500,009 500,009 50,000 150,009 30,000 —— 3,830,000 1,000,000 —— 2,830,000 400,000 3,230,000 250,000 500,000 750,000 650,000 40,000 2,190,000 950,000 1,240,000 300,000 1,540,000Computation of rent income nt received ‘dd: Unearned rent income — January 1 otal ft Less: Unearned rent income ~ December 31 Rent income Computation of gain on sale Sale price Less: Carrying amount of equipment sold Gain on sale of equipment Computation of depreciation Equipment - January 1 Add: Equipment acquired Total Less: Equipment - December 31 550,000 Carrying amount ofequipment sold _ 50,000 Depreciation 431 80,000 60,000 140,000 20,000 120,000 600,000 200,000 800,000 600,000 200,000Negros Store 2 Income Statement| Year Ended December 31, 2021 Net sales (Note 1) + 8,030,009 Cost of goods sold (Note 2) 1,800,000 © _" 1"? 1,230,04 Gross income faa Other income (Note 3) 120.009 Total income 1,360,000 Expenses: Expenses 400,000 Depreciation 00,000 Bad debts ; Interest expense 30,000. _ 660,000 Net income = 200,000 Note that the net income is the same as the amount computed under the single entry formula. Note 1- Net sales Sales 3,230,000 Sales discounts (0,000) Sales returns (_150,000) Net sales 3,030,000 Note 2 - Cost of goods sold Inventory — January 1 800,000 Purchases 1,540,000 Purchase discounts (40,000) 1,500,000 Goods available for sale 2,300,000 Inventory ~ December 31 (500,000) Cost of goods sold ; 1,800,000 Note 3 - Other income Rent income 120,000 Gain on sale of equipment _10,000 Total other income 130,000 10 432Negros Store Statement of Financial Position December 31, 2021 Assets Current assets: Cash Notes receivable ee Accounts receivable toodtan Inventory 090,000 Noncurrent asset: 500,000 Equipment Total assets Current liabilities: Notes payable 250,000 Accounts payable 500,000 ‘Accrued interest payable 20.000 Unearned rent income 20.000 Equity: Capital - January 1 1,950,000 Add:. Net income 700,000 Additional investment 300,000 Total 2,950,000 Less: Withdrawals 200,000 Total liabilities and equity 433 2,990,000 550,000 10 790,000 2,760,000 140,000Illustration 2 ; Silay Company reported the following comparative statemen, of financial position at the current year-end: Assets a Cash 780,000 370,004 2 150,000 200g Notes receivable 000 ‘Accounts receivable 1,000,000 700099 December 81 January 1 1,500,000 — 1,600'09 Inventory 600,009, Prepaid expenses Hegacy 130,009 Investment (at cost) 1,309,000 400,000 Equipment (net) A:£00,000 1,000,000 4,830,000 4,400,009 SS 200 Liabilities and Equity Notes payable 700,000 500,000 Accounts payable 750,000 860,009 Accrued interest payable 30,000 es Accrued expenses 30,000 "20,000 Bonds payable 500,000 50°00 Share capital, P100 par 1,000,000 1,000,000 Share premium 1,000,000 1,000,000 Retained earnings 820,000 _'520,000 4,830,000 4,400,000 An analysis of the cash receipts and cash disbursements disclosed the following: Cash balance — January 1 370,000 Cash receipts: Collections from customers 3,000,000 Proceeds from note receivable discounted with face value of P200,000 180,000 12% one-year note issued to bank, dated March 1 300,000 Sale of investment 250,000 3,730,000 Total 4,100,000 Cash disbursements: Payments to trade creditors 2,000,000 Bosse 670,000 ividends 400,000 Equipment 250,000 3,320,000 Cash balance —December 31 780,000 aS 434Computation of net income he net income is computed using the single entry formula petained earnings ~ December 31 dd: Dividends $20,000 total : eo Less: Retained earnings ~ January 1 1,220,000 Net income 700,000 Computation of sales areas, Notes receivable ~ December 31 tn ‘Accounts receivable — December 31 ape Collections from customers 000.000 Note receivable discounted “200,000 ee 4,350,000 Less: Notes receivable — January 1 200,000 Accounts receivable-January1 — 700,000 900,000 Sales on account 3,450,000 Observe that the note receivable discounted is added back at face value. Computation of purchases Notes payable - December 31 700,000 Less: Note payable — bank 300,000 Notes payable — trade 400,000 Accounts payable — December 31 750,000 Payments to trade creditors 2,000,000 Total 3,150,000 Less: Notes payable - January 1 500,000 Accounts payable -January1 860,000 —_ 1,360,000 Purchases on account 1,390,000 Observe that the note payable-bank is deducted from the tal notes payable on December 31 because the note did not arise from purchase of merchandise. The note is the result of borrowing from the bank. 435Computation of expenses i 670,009 Expenses paid . ‘Add: Prepaid expenses — January 1 130,009 ‘Accrued expenses ~ December 31 — 30,009 830,00 Total — 830,000 Less: Prepaid expenses - December 31 100,000 “= Accrued expenses -January1 — 20,000 __120,009 Expenses — 210.000 Computation of depreciation Equipment - January 1 1,000,000 Add: Equipment acquired 250,000 Total 1,260,000 Less: Equipment - December 31 1,200,000 Depreciation 50,000 Computation of interest expense Interest accrued on bank note payable (300,000 x 12% x 10/12) Loss on note discounting Face value of note discounted 200,000 Proceeds from discounting 180,000 Loss on note discounting _ 20,000 Loss on sale of investment Sale price 250,000 Less: Cost of investment sold: Investment ~ January 1 400,000 Investment ~ December 31 100,000 _ 300.00 Loss on sale of investment (30.009) 436Silay Com, Income Statemen Year Ended December $1, 2021 Jes Saiof goods sold (Note 1) 11390,000 ss income 6 Laas 1,560,000 Expenses Depreciation “y0r000 Loss on.sale of investment 50,000 Loss on note discounting 20,000, Interest expense 30,000 860,000 Net income Note 1- Cost of goods sold Inventory — January 1 1,600,000 Purchases 1,790,000 Goods available for sale 3,390,000 Inventory - December 31 (2,500,000) Cost of goods sold 1,890,000 Observe that the income statement shows a net income which js the same as the net income computed under the single entry formula. 437PROBLEMS Problem 15-1 (IAA) At the beginning of current year, the statement of financial position of Racel Company showed total assets of P5,000,000, total liabilities of P2,000,000 and contributed capital of 2,000,000. During the current year, the entity issued share capital of P500,000 par value at a premium of P300,000. Dividend of P250,000 was paid at year-end, : The statement of financial position at year-end showed total assets of P7,500,000 and total liabilities of P3,200,000. What was the net income for the current year? a. 1,750,000 b. 1,000,000 ¢. 750,000 d. 500,000 Problem 15-2 (IAA) Aubrey Company provided the following data: January 1 December 31 Share capital, P100 par value 5,000,000 5,750,000 are premium, 1,000,000 1,500,000 tained earnings 3,500,000 4,500,000 During the current year, the-entity declared and paid cash {ividend of P1,000,000 and also declared and issued a shave dividend, There’ were io’ other changes th hanes’ iasudd acd Sutstanding during the year. ‘At was the net income for the current year? } 3,250,000 «7000.00 @. 900,000 2,750,000 439Problem 15-3 (PHILCPA Adapted) showed shareholdery 1, 2021 Zeus Company sl oldery nie 00,000. During the current year, the shareholdery equity was affected by: 7 djustment to retained earnings for overstatement of Sane on December 31, 2020 in the amount of P200,000, * Declared dividend of P400,000 of which P300,000 was Paid in 2021. . ‘The share capital was split five for one. - Net income for the current year amounted to P700,000, The share capital of P3,000,000 remained unchanged during the year. * What amount should be reported as retained earnings on January 1, 2021? a. 700,000 b. 900,000 ¢. 800,000 d. 500,000 Problem 15-4 (AICPA Adapted) On December 31, 2021, Melissa Company showed shareholders’ equity of P5,000,000. ‘The share capital of P3,000,000 remained unchanged during the year. The transactions which affected the equity were: * Anadjustment of retained. earnings for 2020 overdepreciation 100,000 * Gain onsale of treasury shares 300,000 * Dividend declared, of which P400,000 was paid 600,000 * Netincome for the current year 800,000 What amount should be reported rnings 00 January 1, 2021? ported as retained earning: a. 1,400,000 b. 1,700,000 ©. 1,200,000 d. 1,600,000 440problem 15-5 (AICPA Adapted) yela Company reported the following i i Meances during the current year: ig increases in account ‘Assets Liabilities 8,900,000 share oa 6000000 Share premium ‘ 000,000 There were no changes in retained earnin, dividend payment of P1,300,000. eee What was the net income for the current year? a. 1,700,000 b. 1,300,000 c. 900,000 4d. 400,000 Problem 15-6 (IAA) Lanao Company showed the following increase (decrease) in ledger account balances during the current year: Cash 800,000 Accounts receivable (400,000) Inventory 300,000 Equipment 950,000 Note payable — bank 500,000 Accounts payable (600,000) Share capital 700,000 300,000 Share premium ‘There were no transactions affecting retained earnings other than a P1,500,000 cash dividend and a P250,000 prior period error from understatement of ending inventory. What was the net income for the current year? 2,000,000 2,500,000 3,250,000 - 3,000,000 peop 441Problem 15-7 (IAA) : hat the beginning and ending toa) rt tl a Fa as potty and P1,000,000, respectively. i id total “equity was P2,600,000 and total asset, At year-end. larger than at the beginning of the year, During the current year, the new share capital issued exceeded dividends by P240,000. What was the net income or loss for the current year? a. 280,000 income b. 280,000 loss ©. d. 200,000 loss 40,000 income Problem 15-8 (PHILCPA Adapted) Camadillo Company reported the following changes in the account balances for the current year, except for retained earnings: Increase Wecrease) Cash 800,000 Accounts receivable, net of allowance 250,000 Inventory 1,250,000 Investments (500,000) Accounts payable (400,000) Bonds payable 900,000 Share capital 1,000,000 Share premium 100,000 There are no entries in the retained earnings account except for net income and a dividend declaration of P300,000 which was paid in the current year. What was the net income for the current year? a. 1,300,000 b. 1,600,000 c. 500,000. d. 200,000 442problem 15-9 (IAA) sunshine Company had total Shareholders’ equity of P2,000,0 current year. assets of P4,000,000 and 100 at the beginning of the During the current year, assets i, abilities decreased by Pg00,909 84 by P500,000 and What amount should be reported rit Wet a oe tarieat yeark as shareholders’ equity at a. 3,300,000 b. 2,300,000 cc, 1,000,000 d. 1,300,000 Problem 15-10 (IAA) Elaine Company disclosed the following changes in account balances for current year: Cash 450,000 increase Accounts receivable 300,000 decrease Merchandise inventory 200,000 increase Accounts payable 100,000 increase Prepaid expenses 20,000 increase Accrued expenses 40,000 increase Unearned rental income 30,000 decrease In the current year, the owner transferred financial assets to the business and these were sold for P500,000 to finance the purchase of merchandise. The owner made withdrawals during the year of P100,000. What was the net income or net loss for the current year? 4. 360,000 income 6. 360,000 loss © 140,000 income 4. 140,000 loss 443Problem 15-11 (IAA) Trend Company provided the following information fo, the current year: Net loss I Total assets on December 31 ante Share capital on December $1 wert Share premium sone Dividends declared : ron Debt-to-equity ratio (abilities divided by equity) \ What amount of retained earnings was reported at the beginning of current year? a. 1,100,000 b. 1,300,000 c. 500,000 d. 600,000 Problem 15-12 (IAA) Java Company reported the following increases (decreases) in the accounts for the current year: Cash 1,500,000 Accounts receivable, net of allowance 3,500,000 Inventory 3,900,000 Investments (1,000,000) Equipment 8,000,000 ‘Accounts payable (800,000) Bonds payable 2,000,000, During the current year, the entity sold 100,000 shares with P20 par value for P30 per share. Dividend of P1,500,000 was paid in cash during the current year. Equipment with fair value of P2,000,000 was donated by shareholder during the current year, What.amount should be reported as net income for the cure" year? a. 6,200,000 b. 9,700,000 c. 8,200,000 d. 7,700,000 444problem 15-13 (LAA) i f current ‘ispi the beginning o} went year, Crispin §, ‘etail merchandise business, During the curiae eae the ree oss paid trade creditors Pe dulled bose of P350,000. " '°"* P2,000,000 in cash and suffered the ledger preclosing balances at year-end included the following: ccounts receivable counts payable 750.000 Capital (total investment in cash) 7 2,000,000 Expenses paid in cash "100,000 Merchandise — unadjusted debit balance 700,000 There were no withdrawal be Is. All sales and purchases were on credit. The merchandise account is debited for purchases and credited for sales, 1, What amount should be reported as purchases for the year? a. 2,000,000 2,750,000 1,250,000 d. 2,050,000 2,750,000 2,050,000 2,650,000 700,000 What amount should be reported as sales for the year? b, ©, a. b. ¢, d What amount shuld be reported as cash balance at year-end? a. 1,350,000 b. 2,000,000 * ¢. 1,450,000 4. 3,450,000 What amount should be reported as merchandise inventory at year-end? & 700,000 450,000 & 750,000 d 0