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Question-1

What is Single Entry System?

Solution:
Accounts from Incomplete Records or Single Entry System is a system in which accounting records are not kept according to double entry principle of book keeping.

Question-2

Give one limitation of Single Entry System?

Solution:
Under Single Entry System, the cash book and personal ledgers are maintained; real and nominal accounts are not.

Question-3

What is Statement of Affairs?

Solution:
To ascertain profit, according to Single Entry System, it is necessary to prepare a statement of affairs at the end of the year and also at the beginning of the year, if not already prepared.

Question-4

From which account we can get the information of credit sales?

Solution:
Sundry Debtors

Question-5

From which account we can get the information of credit purchases?

Solution:
Sundry Creditors

Question-6

Define Single Entry System? What are the defects of this system?

Solution:
Definition: Kohler defines Single Entry System as “A System of book keeping in which as a rule only records of cash and of personal accounts are maintained, it is always incomplete double entry varying with the circumstances”.

 

Sometimes the term Single Entry System is mistakenly understood that under this system only one aspect of a transaction is recorded in the books. This is not true. The fact remains that under this system, while for certain transactions both the aspects are recorded, for others only one aspect is recorded and some transactions are even ignored.

Defects of this System
 

1

Arithmetical Accuracy cannot be proved

Trial Balance cannot be prepared and hence, arithmetical accuracy of books cannot be proved or tested. Chances of error, mischief or fraud remaining undetected are high.

2

No control on assets

Since asset accounts are not maintained, it may be difficult to keep full control, in order to avoid misappropriations of assets

3

True profits cannot be known

Trading and Profit and Loss Account cannot be prepared and hence the correct profit earned or loss suffered during the accounting period is not known

4

Financial position of the business cannot be judged

Balance sheet, called Statement of Affairs under Single Entry System, is prepared in an unsatisfactory manner. The assets and liabilities are not provided from records but are put down by physical inspection and on estimated basis. Thus, exact position of total net assets cannot be known

5

No Internal Check

Since internal check is not possible, the method gives enough room for errors and frauds, besides their detection very difficult

6

Difficult to ascertain the value of Business

The records being inadequate, it is difficult to value the business, especially goodwill.

7

Inadequate for Planning and control

Accounting information supplied by the accounting records is inadequate for managerial planning and control

8

Incomplete and Unscientific System

This system is incomplete and unscientific as both the aspects of a transaction are not recorded and no set rules are followed for recording them

9

Comparitative study is difficult

A major defect of this system is that the financial position of the current year cannot be compared with that of the previous year due to incomplete information of transactions of business

 

Question-7

Mention three characteristics of Single Entry system?

Solution:

1

Maintenance of Personal Accounts

Usually under this system, only personal accounts are maintained and real and nominal accounts are avoided. Therefore sometimes, it is defined as a system where only personal accounts are kept.

2

Maintenance of cash book

A cash book is generally maintained in this sytem which mixes up business as well as private transactions

3

Preparation of Final Accounts

In the absence of all nominal and real accounts, the final accounts cannot be prepared easily. After converting the available information into double entry records and the missing amounts have been found out, only Trading and Profit and Loss account can be prepared. The amounts of assets and liabilities can also be computed from incomplete records, but they are based on estimates. That is the reason why the statement of assets and liabilities prepared under this system at the end of the accounting period is called a “Statement of Affairs” instead of “ Balance Sheet”.

 

Question-8

What is Statement of Affairs? How is it prepared?

Solution:
To ascertain profit, according to Single Entry System, it is necessary to prepare a statement of affairs at the end of the year and also at the beginning of the year, if not already prepared. Like the Balance Sheet, the statement of affairs has two sides – the right hand side for assets and the left hand side for liabilities. To prepare the statement, information has to be collected from various sources. Information about assets will be available from the Cash book, the Personal Ledger etc. The value of the closing stock will be ascertained by preparing stock sheets and valuing the stock in hand, at lower of cost and market value. If the trader has any other assets, like furniture, machinery etc., the value will be ascertained and included among the assets. The business is likely to have full knowledge of the amounts owing to third parties. The difference between the total of assets and liabilities will be capital.

 

CAPITAL = TOTAL ASSETS – LIABILITIES

 

For ascertaining profit the capital in the beginning of the year must also be ascertained, if necessary, by preparing a statement of affairs as at the beginning of the year. If the capital at the end of the year exceeds that at the beginning, we can say that there has been a profit. If on the other hand, the capital in the beginning was more that that at the end, there must have been a loss. However, two adjustments must be borne in mind for ascertaining profit.

 

a. Adjustments in capital introduced – If the proprietor brought in some additional capital during the year, it should be deducted from the capital at the end (since this increase is not due to profit but fresh introduction of capital ); and

b. Adjustments for Drawings – The drawings of the proprietor should be added to the capital at the end – had the drawings not been made, the capital at the end of the year would be higher.

 

FORMULA FOR DETERMINING PROFIT IS AS FOLLOWS –

 

PROFIT = (CAPITAL AT THE END + DRAWINGS – ADDITIONAL CAPITAL INTRODUCED – CAPITAL AT THE BEGINNING).

 

The above formula may be shown as follows in the form of a Statement of Profit or Loss:

 

Particulars

Rs.

Capital at the end

Add: Drawings during the year

Less: Additional Capital introduced during the year

Adjusted capital at the end

Less: Capital in the beginning

Profit or Loss for the year

xxxx

xxxx

xxxx

xxxx

xxxx

xxxx

 

Summary of the procedure-

 

1. Prepare Statement of affairs at the beginning for calculating capital in the beginning. A statement of affairs is a statement of all assets and liabilities. The difference between the amounts of the two sides is taken as capital.

2. Then, prepare statement of affairs at the end in order to calculate capital at the end.

3. Adjust the capital at the end by adding drawings, and deducting there from capital introduced during the year.

4. From the adjusted capital at the end deduct capital at the beginning. This difference is either a profit or loss.

Question-9

Mohan maintains books on single entry. He gives you the following information.

 

Details

Rs.

Capital on January 1, 2007

15200

Capital on December 31, 2007

16900

Drawings made during the year

4800

Capital introduced on August 1 2007

2000

 

 


Solution:
Profit made during the period – Rs. 4, 500.

 

Statement of Profit or Loss  
for the year ended December 31 2007  
   
Particulars

Rs.

Capital on December 31, 2007

16900

Add Drawings

4800

 

21700

Less Capital introduced during the year

2000

Adjusted capital at the end

19700

Less: Capital at the beginning

15200

Net Profit for the year

4500

 

Question-10

Hari, who keeps his books on Single Entry System, tells you that his Capital on 1st March 2008 is Rs. 1, 87,000 and his capital on 1st April 2007, was Rs. 1,92,000. he further informs you that during the year he withdrew for his household purposes Rs. 84200. He once sold his investment of Rs. 20000 at 2% premium and brought the money into the business. You are required to prepare a statement of Profit or Loss.

Solution:
Statement of Profit or Loss  
for the year ended March 31, 2008  
   
Particulars

Rs.

Capital at the end 187,000
Add Drawings 84,200
  271,200
Less Capital introduced during the year (102/100*Rs. 20000) 20,400
Adjusted capital at the end 250,800
Less: Capital at the beginning 192,000
Net Profit for the year 58,800

 

Question-11

Sanjay started a firm on 1st April 2007 with a Capital of Rs. 10,000. on 1st July 2007 he borrowed from his wife a sum of Rs. 4,000 @ 9% pa (interest not yet paid) for business and introduces a further capital of his own amounting to Rs. 1500. On 31st March 2008 his position was:
 
Cash Rs. 600
Stock Rs. 9400
Debtors Rs. 7000
Creditors Rs. 6000

 

Ascertain his profit or Loss taking into account Rs. 2000 for his drawings during the year.

 


Solution:

Statement of Affairs

as at 31st March 2008

Liabilities Rs. Rs. Assets Rs.

Rs.

Creditors   6,000 Cash   600
Mrs. Sanjay's Loan 4,000   Stock   9,400
Interest on Loan 270 4,270 Debtors   7,000
Capital (Balancing Figure)   6,730      
           
    17,000    

17,000

           

 

Statement of Profit or Loss  
for the year ended March 31, 2008  
   
Particulars

Rs.

Capital at the end 6,730
Add Drawings 2,000
  8,730
Less Capital introduced during the year (102/100*Rs. 20000) 1,500
Adjusted capital at the end 7,230
Less: Capital at the beginning 10,000
Loss for the year 2,770
   

 

Question-12

Rama keeps his books under the Single entry system. His assets and liabilities were as under-

Particulars

31.3.2007

31.3.2008

Cash

1000

900

Sundry Debtors

39000

45000

Stock

34000

32000

Plant and Machinery

60000

80000

Sundry Creditors

15000

14900

Bills payable

 

5000

 

During 2007-2008, he introduced Rs.10000 as new capital. He withdrew Rs. 3000 every month for his household expenses. Ascertain his profit for the year ending march 31st 2008.

 


Solution:

Statement of Affairs

as at 31st March 2007

Liabilities Rs. Rs. Assets Rs. Rs.
Creditors   15,000 Cash   1,000
Capital (Balancing Figure)   119,000 Stock   34,000
      Debtors   39,000
      Plant & Machinery   60,000
           
    134,000     134,000
 
Statement of Affairs
as at 31st March 2008
Liabilities Rs. Rs. Assets Rs. Rs.
Creditors   14,900 Cash   900
Capital (Balancing Figure)   138,000 Stock   32,000
Bills Payable   5,000 Debtors   45,000
      Plant & Machinery   80,000
    157,900     157,900
 

Statement of Profit or Loss

for the year ended March 31, 2008

   
Particulars Rs.
Capital at the end 138,000
Add Drawings 36,000
  174,000
Less Capital introduced during the year 10,000
Adjusted capital at the end 164,000
Less: Capital at the beginning 119,000
Profit earned during the year 45,000

Question-13

From the following information, you are required to calculate Total purchases.
 
Cash Purchases Rs. 17,000
Creditors as on January 1, 2007 Rs. 8000
Cash paid to creditors Rs. 31000
Purchases returns Rs. 1000
Creditors as on December 31, 2007 Rs. 13400

Solution:

Total Creditors Account

Particulars Rs. Rs. Particulars Rs. Rs.
To Cash/Bank A/c   31,000 By Balance b/d   8,000
To Purchases Returns   1,000 By Purchases (Balancing figure)   37,400
To Balance c/d   13,400      
           
    45,400     45,400

Question-14

From the following information, calculate the total sales:
 

Particulars

Rs.

Particulars

Rs.

Bills Receivable in the beginning

15600

Debtors in the beginning

61600

Bills receivable encashed during the year

41800

Cash received from Debtors

140000

Bad Debts written off

5600

Sales Returns

17400

Bills Receivable (dishonoured)

3600

Bills receivable at the end

12000

Debtors at the end

51000

Cash sales

81800

 

 


Solution:

Bills Receivable Account

Particulars Rs. Rs. Particulars Rs. Rs.
To Balance b/d   15,600 By Cash/bank   41,800
To Debtors, being the bills     By Debtors (Bills Receivable dishonoured)   3,600
Bills received during the year (Balancing figure)   41,800 By balance c/d   12,000
           
    57,400     57,400
 

Total Debtors Account

Particulars Rs. Rs. Particulars Rs. Rs.
To Balance b/d   61,600 By Cash/bank   140,000
To Bills receivable (dishonoured)   3,600 By Bad Debts   5,600
To Sales(Balancing figure)   190,600 By Sales Returns   17,400
      By Bills Receivable   41,800
      By Balance c/d   51,000
    255,800     255,800
           
Total Sales = Cash sales + Credit Sales = Rs. 81800+Rs. 190600= Rs. 272400

Question-15

Ascertain Credit sales and credit purchases from the following information:
 

Particulars

Rs.

Particulars

Rs.

Opening Balance

11400

Cash received

48300

Discount allowed

1500

Bad debts written off

300

Returns

800

Bills receivable received

6100

Closing Balance

10800

Opening Balance

6800

Cash Paid

25100

Discount received

300

Returns

600

Bills payable issued

3100

Closing balance

5400

   

 

 


Solution:

Total Debtors A/C

Particulars Rs. Rs. Particulars Rs. Rs.
To Balance b/d   5,000 By Cash/bank   30,000
ToCredit Sales (balancing figure)   38,250 By Discount   150
To cash returned   500 By Bad Debts   1,200
To Bills receivable (dishonoured)   1,000 By Sales Returns   600
To Creditors   500 By Bills Receivable   10,000
To Bank (discounted B/R dishonoured)   700      
           
      By balance c/d   4,000
           
    45,950     45,950
 

Total Creditors A/C

Particulars Rs. Rs. Particulars Rs. Rs.
To Cash/bank   20,700 By Balance c/d   4,000
To Discount   270 By Purchases (Credit) (Balancing figure)   34,670
To Bills Receivable (endorsed)   4,000 By Debtors (bills endorsed dishonoured)   500
To Purchases Returns   200      
To Bills Payable   8,000      
To Balance c/d   6,000      
           
    39,170     39,170

Question-16

From the following information, ascertain the value of closing stock:
 
Stock in the beginning Rs. 10000
Cash sales Rs. 30000
Credit sales Rs. 20000
Purchases Rs. 35000
Rate of Gross Profit on cost 1/3

Solution:

Memorandum Trading A/C

Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock   10,000 By Sales:    
To Purchases   35,000 Cash 30,000  
To Gross Profit   12,500 Credit 20,000 50,000
      By Closing stock (Balancing Figure)   7,500
           
    57,500     57,500

 

Gross profit is 1/3rd of cost = 1/4th on sales

Gross profit Rs. 50000*1/4 = Rs. 12500

Closing stock will be the balancing figure.

Question-17

Rajesh does not maintain proper books of accounts. From the following particulars, prepare Trading and Profit and Loss Account for the year ended December 31st 2007 and the Balance Sheet as on that date:

 

Particulars

As on 31st Dec 2006

As on 31st Dec 2007

Debtors

9000

12500

Stock

4900

6600

Furniture

500

750

Creditors

3000

2250

Other transactions are as follows:

   

Cash collected from debtors

30400

 

Cash paid to creditors

22000

 

Salaries

6000

 

Rent

750

 

Office Expenses

900

 

Drawings

1500

 

Additional capital introduced

1000

 

Cash sales

750

 

Cash purchases

2500

 

Discount received

350

 

Discount allowed

150

 

Returns inward

500

 

Returns outward

400

 

Bad Debts

100

 

 

 

He had Rs. 2500 as cash balance at the beginning of the year.

 


Solution:

Trading and Profit & Loss Account

for the year ended December 31 2007

Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock   4,900 By Sales    
To Purchases     Cash 750  
Cash 2,500   Credit (Note 3) 34,650  
Credit (Note 4) 22,000     35,400  
  24,500   Less: Returns 500 34,900
Less: Returns 400 24,100 By closing stock   6,600
To Gross Profit c/d   12,500      
           
    41,500     41,500
To Salaries   6,000 By Gross Profit   12,500
To Rent   750 By Discount Received   350
To Office Expenses   900      
To Discount allowed   150      
To Bad Debts   100      
To Net Profit transferred to capital a/c   4,950        
    12,850     12,850

 

 

 

Balance Sheet as at December 31, 2007

 

Liabilities Rs. Rs. Assets Rs. Rs.
Creditors   2,250 Cash (Note 2)   1,000
Creditors for Furniture (Rs. 750 - Rs.500)   250 Debtors   12,500
Capital as on 1.1.2007 (note 1) 13,900   Stock   6,600
Add: Capital introduced 1,000   Furniture   750
Net Profit 4,950        
  19,850        
Less: Drawings 1,500 18,350      
    20,850     20,850
 

Working Notes

Working Note 1

Balance Sheet as at December 31 2006

Liabilities Rs. Rs. Assets Rs. Rs.
Creditors   3,000 Cash and bank balance   2,500
Capital (Balancing Figure)   13,900 Debtors   9,000
      Stock   4,900
      Furniture   500
    16,900     16,900
 
Working Note 2

Cash Book

Particulars Rs. Rs. Particulars Rs. Rs.
To Balance b/d   2,500 By Sundry Creditors   22,000
To Sundry Debtors   30,400 By Salaries   6,000
To Capital   1,000 By Rent   750
To Cash Sales   750 By Office Expenses   900
      By Drawings   1,500
      By Purchases   2,500
      By balance c/d   1,000
    34,650     34,650
 
Working Note 3

Total Debtors Account

Particulars Rs. Rs. Particulars Rs. Rs.
To Balance b/d   9,000 By Cash/bank   30,400
To Credit Sales (Balancing Figure)   34,650 By Discount   150
      By Returns inwards   500
      By Bad Debts   100
      By Balance c/d   12,500
    43,650     43,650
 
Working Note 4

Total Creditors Account

Particulars Rs. Rs. Particulars Rs. Rs.
To Cash /bank   22,000 By Balance b/d   3,000
To Discount   350 By Credit Purchases (Balancing Figure)   22,000
To Returns Outwards   400      
To Balance c/d   2,250      
    25,000     25,000

 





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