CHAPTER 20 – ACCOUNTING FOR NOT-FOR-PROFIT ORGANISATION
(SINGLE ENTRY / INCOMPLETE RECORDS)
INTRODUCTION
Many small businesses and professionals do not maintain complete books of accounts.
They keep only Cash Book and Personal Accounts of Debtors & Creditors.
Real and Nominal accounts are not maintained.
This is known as the Single Entry System or Accounts from Incomplete Records.
MEANING AND FEATURES
Definition
Kohler: “A system of bookkeeping in which, as a rule, only records of cash and personal accounts
are maintained, it is always incomplete double entry varying with the circumstances.”
Features of Single Entry
1. Suitability – for small businesses with limited transactions.
2. Cash Book – includes business + personal transactions.
3. Personal Accounts – kept, but real/nominal accounts not.
4. Original Vouchers – used to extract information.
5. No uniformity – varies from business to business.
6. Final Accounts not easily prepared – only after conversion to double entry.
ADVANTAGES & DISADVANTAGES
Advantages
Simple method.
Less expensive than Double Entry.
Suitable for small firms.
No deep knowledge of accounting required.
Easier computation of profit/loss.
Disadvantages
Arithmetical accuracy not proved (no Trial Balance).
True financial position not known.
High risk of fraud and manipulation.
Assets & liabilities not properly recorded.
Not legally acceptable for big companies.
PAGE 4 – SINGLE ENTRY VS DOUBLE ENTRY
Basis Double Entry System Single Entry System
Records both debit & Sometimes both, sometimes one, sometimes
Aspects
credit. none.
Accounts All – Personal, Real,
Only Cash & Personal Accounts.
Maintained Nominal.
Prepared → accuracy
Trial Balance Not prepared.
ensured.
Profit/Loss True profit via P&L A/c. Estimated via Statement of Affairs.
Financial Position Balance Sheet reliable. Statement of Affairs – not reliable.
Suitability All firms. Only small traders.
Legal Validity Accepted in Court. Not accepted in Court.
ASCERTAINING PROFIT
Two methods:
1. Statement of Affairs / Net Worth Method
Capital = Assets – Liabilities.
Profit = Closing Capital + Drawings – Additional Capital – Opening Capital.
Illustration 1:
Capital on 1 April 2021 = ₹40,600
Capital on 31 March 2022 = ₹45,800
Drawings = ₹10,700
Capital introduced = ₹5,000
Profit = (45,800 + 10,700 – 5,000) – 40,600 = ₹10,900.
PAGE 6 – DIFFERENCE: BALANCE SHEET VS STATEMENT OF AFFAIRS
Basis Balance Sheet Statement of Affairs
Objective Shows true financial position. Finds capital/net worth.
System Double Entry. Single Entry.
Data Source Ledger balances. Estimates + vouchers.
Reliability Highly reliable. Not reliable.
Trial Balance Prepared before. Not prepared.
CONVERSION METHOD (Step by Step)
Used when we need Final Accounts from incomplete records.
Steps:
1. Prepare Opening Statement of Affairs → find opening capital.
2. Prepare Cash Book → to reconcile receipts & payments.
3. Prepare Debtors A/c → to find Credit Sales.
4. Prepare Creditors A/c → to find Credit Purchases.
5. Prepare Bills Receivable & Bills Payable A/cs → to fill missing balances.
6. Find Total Sales & Purchases.
7. Prepare Trading A/c, P&L A/c, Balance Sheet.
Illustration 2: Debtors A/c
Opening Debtors = ₹40,800
Closing Debtors = ₹55,200
Cash received = ₹1,23,600 (incl. ₹2,000 from sale of old asset)
Bad Debts = ₹4,800
Sales Return = ₹10,800
Solution:
Credit Sales = Balancing Figure in Debtors A/c = ₹1,51,600.
CREDITORS A/C & BILLS
Illustration 3: Creditors A/c
Opening Creditors = ₹16,000
Closing = ₹26,800
Cash Paid = ₹62,000
Purchase Returns = ₹2,000
Credit Purchases = Balancing Figure = ₹74,800.
Illustration 4: Bills
Bills Receivable Opening = ₹5,500
Bills Received = ₹24,500
Bills Dishonoured = ₹500
Bills Encashed = ₹23,000
Closing Balance = ₹6,500.
FULL FINAL ACCOUNTS EXAMPLE
Illustration 5 (from chapter):
Given cash sales, credit sales, expenses, debtors, creditors, stock, etc.
Preparation of:
Trading A/c → GP = Sales – Purchases ± Stock.
P&L A/c → Net Profit after all expenses.
Balance Sheet → Capital = Assets – Liabilities.
Shows how incomplete data is converted into full Final Accounts.
HINTS FOR FINDING MISSING VALUES
Missing Value How to Find
Credit Sales From Debtors A/c.
Cash Sales Total Sales – Credit Sales.
Purchases From Creditors A/c + Cash Purchases.
Gross Profit Sales – COGS.
Opening/Closing Stock From Memorandum Trading A/c.
Expenses Adjust prepaid/outstanding.
SUMMARY POINTS
Single Entry = Incomplete records.
Profit ascertainment = Net Worth Method or Conversion Method.
Statement of Affairs ≠ Balance Sheet (not reliable).
Debtors A/c, Creditors A/c, Bills A/c help trace missing values.
Final Accounts can be prepared after conversion.
PRACTICE QUESTIONS
1. What is Single Entry System? State its features.
2. Distinguish between Double Entry and Single Entry.
3. Compute profit from the following:
o Opening Capital ₹50,000; Closing Capital ₹65,000; Drawings ₹15,000; Capital
introduced ₹10,000.
4. From given info, prepare Total Debtors A/c and find Credit Sales.
5. Why is Statement of Affairs not as reliable as Balance Sheet?
6. Prepare Trading, P&L, and Balance Sheet from given incomplete records.
