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Ascertaining Profit under the Single Entry System

The main purpose of any business is to earn profit. Every business owner, therefore, is desirous to know whether he has earned profit or incurred loss after a certain period of time generally after the end of a year. In fact, to ascertain profit or loss becomes all the more essential if the business happens to be a partnership firm because the partners have to share the profits of the firm at the end of the each accounting period. Then, the question arises as to how to ascertain profits when the accounting records are incomplete, accounts are maintained under the Single Entry System. The reason is that Profit and Loss Account cannot be prepared in the absence of Trial Balance. In such a situation, there are two methods used for ascertaining profits of the business. They are-
  1. Net Worth Method or Statement of Affairs Method and
  2. Conversion Method

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