Subject: Financial Accounts

Topic: Single Entry System

By: Questionscastle Academic Team

Document Code: CA/IPCC/ACC/00017

Single Entry System of accounting is a system of accounting where books of account are prepared without completing a double entry. This system of accounting is kept by those persons who generally dont have large business transactions and have less or no knowledge about double entry system of accounts, e.g. small retailers, small traders etc. Difference between double entry system and single entry system: Double Entry System Single Entry System 1 Under this system Personal, Real and Under this system only personal nominal accounts are taken in to accounts are taken in to consideration. consideration. 2 Under this system Debtors and Creditors ledger, Cash book and general ledger are maintained for a complete transaction. Under this method, cash book, debtors and creditors ledger are maintained ignoring the effect of personal transactions. Personal transactions are consolidated with business transactions.

Detection of errors and arithmetical Detection of errors and arithmetical accuracy is possible since trial accuracy is not possible since trial balance is prepared. balance is not prepared. This system is based on scientific This system is not scientific and is methods and hence is accepted not approved by many authorities universally. such as Income Tax Department. This method is reliable because each This is not a reliable system because transaction can be cross checked not cross checking is possible. from two ledgers.

Methods of Preparing Accounts with Single Entry System: Under single system accounts can be prepared by two methods. These are: 1. Conversion Method, 2. Comparison Method. 1. Conversion Method: Under conversion method information regarding yearly transactions are available, although incomplete but enough to prepare necessary accounts. The following accounts are prepared in conversion method: 1. Debtors/Bill Receivable A/c 2. Creditors/Bills Payable A/c 3. All Expenses A/c 4. Cash/Bank A/c 5. Profit and Loss A/c 6. Opening Balance Sheet 7. Closing Balance Sheet In this method of single entry system necessary information regarding all above

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accounts is given and the above accounts are completed on the basis of best assumptions. Comparison Method: Under comparison method very limited information is available and accounts are prepared on the basis of this limited information. This type of method is generally used by assessing authorities to assess a scrutinized assesee. Under this only two statements are prepared in lieu of accounts. These are: (1) Statement of Profit and Loss (Prepared in lieu of Profit and Loss A/c), (2) Statement of Affairs (Prepared in lieu of Balance Sheet) Format for Statement of Profit and Loss: Closing Capital : XXX Less: Opening Capital : XXX Add: Drawings : XXX Less: Additional Capital : XXX Profit for the year XXX A statement of affairs is prepared just as a balance sheet, only heading is replaced by Statement of Affairs instead of Balance Sheet.