Chapter 9: Single Entry System (Accounting from Incomplete Records)
9.1 Concept of Single Entry System
9.1.1 Meaning and Definition
The Single Entry System (Accounting from Incomplete Records) refers to any book-keeping system that does not strictly follow the dual-aspect principles of the Double Entry System. Under this system, small sole proprietors typically maintain only a Cash Book and Personal Accounts of Debtors and Creditors, while completely ignoring Real Accounts (Fixed Assets) and Nominal Accounts (Expenses and Incomes).
- R.N. Carter: “Single Entry cannot be termed as a system, as it is not based on any scientific system like Double Entry System. For this purpose, Single Entry is nowadays known as preparation of accounts from incomplete records.”
- Kohler: “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 circumstances.”
9.1.2 Features, Advantages, and Limitations of Single Entry System
| Dimension | Key Points |
|---|---|
| Features | 1. Maintenance of Personal Accounts Only: Records Debtors and Creditors while ignoring Real and Nominal accounts. 2. Maintenance of Cash Book: Often mixes business and personal cash transactions. 3. Dependence on Original Vouchers: Relies on physical bills/invoices for asset values and adjustments. 4. Lack of Uniformity: Varies from trader to trader according to personal convenience. |
| Advantages | 1. Simple & Economical: Easy to understand; does not require hiring skilled accountants. 2. Suitable for Small Traders: Ideal for small retail shops with mostly cash transactions. 3. Time-Saving: Fewer books of accounts need to be maintained. |
| Disadvantages / Limitations | 1. No Trial Balance: Arithmetical accuracy of books cannot be verified because both aspects are not recorded. 2. No True Profit or Loss: Trading and P&L Account cannot be prepared directly; profit is only estimated by comparing capitals. 3. Encourages Fraud and Errors: Absence of internal checks makes embezzlement hard to detect. 4. Unacceptable to Tax Authorities & Banks: Rejected by Inland Revenue Department (IRD) for corporate tax assessment and by banks for large loan appraisals. |
9.1.3 Difference Between Single Entry System and Double Entry System
| Basis of Difference | Single Entry System | Double Entry System |
|---|---|---|
| 1. Dual Effect | Records only one aspect for some transactions and ignores other transactions altogether. | Records both Debit and Credit aspects of every financial transaction scientifically. |
| 2. Accounts Maintained | Maintains only Cash Book and Personal Accounts (Debtors and Creditors). | Maintains Personal, Real, and Nominal Accounts completely. |
| 3. Trial Balance | Trial Balance cannot be prepared, so arithmetical accuracy remains unverified. | Trial Balance is prepared regularly to check arithmetical accuracy. |
| 4. Ascertainment of Profit/Loss | Profit/Loss is only estimated via Statement of Profit or Loss (Net Worth Method). | True Gross Profit and Net Profit are ascertained via Trading and P&L Account / Income Statement. |
| 5. Financial Position | Only an estimated Statement of Affairs is prepared (assets valued by physical inspection). | A true and verified Balance Sheet is prepared from ledger balances. |
| 6. Authenticity & Legal Recognition | Not recognized by tax laws, Company Act, or NAS/NFRS. | Universally accepted by tax authorities, courts, banks, and NFRS. |
9.2 Ascertainment of Profit or Loss Under Net Worth (Statement of Affairs) Method
Since Nominal Accounts are absent under the Single Entry System, profit or loss is determined by comparing the Opening Capital (at the beginning of the year) and Closing Capital (at the end of the year) after adjusting for Drawings and Additional Capital (Fresh Capital) introduced during the year.
Step-by-Step Procedure (4 Steps)
- Step 1: Prepare Opening Statement of Affairs (as on the first day of the year) to find Opening Capital (Opening Assets - Opening Liabilities). (Skip if Opening Capital is already given in the question).
- Step 2: Prepare Closing Statement of Affairs (as on the last day of the year, before year-end adjustments) to find Closing Capital (Closing Assets - Closing Liabilities).
- Step 3: Prepare Statement of Profit or Loss for the year (incorporating Drawings, Additional Capital, and all Year-End Adjustments like Depreciation, Bad Debts, Provision for Doubtful Debts, Outstanding Expenses, and Prepaid Expenses).
- Step 4: Prepare Revised (Final) Statement of Affairs / Balance Sheet (incorporating Adjusted Closing Capital and all year-end adjustments).
9.2.1 Specimen of Statement of Affairs (Opening & Closing)
Name of Proprietor / Firm
Statement of Affairs
As on [Opening Date] and [Closing Date]
| Liabilities | Opening (Rs.) | Closing (Rs.) | Assets | Opening (Rs.) | Closing (Rs.) |
|---|---|---|---|---|---|
| Sundry Creditors | XXX | XXX | Cash in Hand | XXX | XXX |
| Bills Payable | XXX | XXX | Cash at Bank | XXX | XXX |
| Bank Overdraft / Bank Loan | XXX | XXX | Sundry Debtors | XXX | XXX |
| Outstanding Expenses (if given in table) | XXX | XXX | Bills Receivable | XXX | XXX |
| Capital (Balancing Figure = Assets - Liab.) | XXX | XXX | Stock-in-Trade (Inventory) | XXX | XXX |
| Furniture & Fixtures | XXX | XXX | |||
| Plant, Machinery & Building | XXX | XXX | |||
| Total | XXXX | XXXX | Total | XXXX | XXXX |
9.2.2 Specimen of Statement of Profit or Loss (With Adjustments)
Name of Proprietor / Firm
Statement of Profit or Loss
For the Year Ended …
| Particulars | Details (Rs.) | Amount (Rs.) |
|---|---|---|
| Closing Capital (as per Closing Statement of Affairs) | XXX | |
| Add: Drawings made during the year (in Cash or Goods — e.g., Monthly Drawings × 12) | XXX | |
| Sub-total | XXX | |
| Less: Additional / Fresh Capital introduced during the year (including personal property/lottery money invested in business) | (XXX) | |
| Adjusted Closing Capital | XXX | |
| Less: Opening Capital (as per Opening Statement of Affairs) | (XXX) | |
| Profit Before Adjustments (Unadjusted Profit) | XXX | |
| Add: Unadjusted Incomes & Gains: | ||
| • Prepaid Expenses at the end of the year | XXX | |
| • Accrued / Receivable Income at the end of the year | XXX | |
| • Appreciation in the value of Fixed Assets | XXX | |
| • Interest on Drawings | XXX | XXX |
| Sub-total | XXX | |
| Less: Unadjusted Expenses, Losses & Provisions: | ||
| • Depreciation on Fixed Assets (Plant, Machinery, Furniture, Building) | XXX | |
| • Further Bad Debts written off | XXX | |
| • Provision for Doubtful Debts (% on Good Debtors = Closing Debtors - Further Bad Debts) | XXX | |
| • Outstanding / Unpaid Expenses at the end of the year | XXX | |
| • Advance / Unearned Income at the end of the year | XXX | |
| • Interest on Capital / Interest on Bank Loan unpaid | XXX | (XXX) |
| Net Profit (or Net Loss) for the Year (Transferred to Final Statement of Affairs) | XXX |
9.3 Complete Worked Numerical Example (NEB 5-Mark / 8-Mark Standard)
Illustration 9.1:
Mr. Binod Thapa keeps his books under the Single Entry System. He provides the following particulars of his assets and liabilities:
| Particulars | On 1st Shrawan 2081 (Rs.) | On the last day of Ashadh 2082 (Rs.) |
|---|---|---|
| Cash in Hand | 15,000 | 25,000 |
| Cash at Bank | 35,000 | 45,000 |
| Sundry Debtors | 80,000 | 1,05,000 |
| Stock of Goods | 70,000 | 90,000 |
| Furniture | 40,000 | 40,000 |
| Machinery | 1,20,000 | 1,50,000 |
| Sundry Creditors | 50,000 | 65,000 |
| 10% Bank Loan | 40,000 | 40,000 |
Additional Information:
- During the year, Mr. Thapa withdrew Rs. 3,000 per month for his domestic expenses (Rs. 3,000 × 12 = Rs. 36,000).
- He sold his personal motorbike for Rs. 50,000 and introduced Rs. 30,000 out of that into the business as additional capital on 1st Magh 2081 (Note: Additional machinery of Rs. 30,000 [1,50,000 - 1,20,000] was also purchased on 1st Magh 2081).
- Write off Bad Debts Rs. 5,000 and create a Provision for Doubtful Debts @ 5% on remaining debtors.
- Depreciate Furniture @ 10% p.a. and Machinery @ 10% p.a. (Old Machinery Rs. 1,20,000 for 12 mos = Rs. 12,000 + New Addition Rs. 30,000 for 6 mos = Rs. 1,500 → Total Machinery Depr. = Rs. 13,500).
- Salary outstanding on the last day of Ashadh 2082 was Rs. 6,000, Prepaid Insurance was Rs. 2,500, and full year’s interest on 10% Bank Loan (Rs. 4,000) is still unpaid.
Required:
- Opening and Closing Statement of Affairs.
- Statement of Profit or Loss for the year ended the last day of Ashadh 2082.
- Revised (Final) Statement of Affairs as on the last day of Ashadh 2082.
Solution:
1. Statement of Affairs of Mr. Binod Thapa
As on 1st Shrawan 2081 and the Last Day of Ashadh 2082
| Liabilities | 1st Shrawan 2081 (Rs.) | Last Day of Ashadh 2082 (Rs.) | Assets | 1st Shrawan 2081 (Rs.) | Last Day of Ashadh 2082 (Rs.) |
|---|---|---|---|---|---|
| Sundry Creditors | 50,000 | 65,000 | Cash in Hand | 15,000 | 25,000 |
| 10% Bank Loan | 40,000 | 40,000 | Cash at Bank | 35,000 | 45,000 |
| Capital (Balancing Figure) | 2,70,000 | 3,50,000 | Sundry Debtors | 80,000 | 1,05,000 |
| Stock of Goods | 70,000 | 90,000 | |||
| Furniture | 40,000 | 40,000 | |||
| Machinery | 1,20,000 | 1,50,000 | |||
| Total | 3,60,000 | 4,55,000 | Total | 3,60,000 | 4,55,000 |
2. Statement of Profit or Loss of Mr. Binod Thapa
For the Year Ended on the Last Day of Ashadh 2082
| Particulars | Details (Rs.) | Amount (Rs.) |
|---|---|---|
| Closing Capital (as on the last day of Ashadh 2082) | 3,50,000 | |
| Add: Drawings during the year (Rs. 3,000 × 12) | 36,000 | |
| Sub-total | 3,86,000 | |
| Less: Additional Capital introduced during the year | (30,000) | |
| Adjusted Closing Capital | 3,56,000 | |
| Less: Opening Capital (as on 1st Shrawan 2081) | (2,70,000) | |
| Profit Before Adjustments (Unadjusted Profit) | 86,000 | |
| Add: Unadjusted Incomes / Prepayments: | ||
| • Prepaid Insurance | 2,500 | |
| Sub-total | 88,500 | |
| Less: Unadjusted Expenses, Losses & Provisions: | ||
| • Bad Debts written off | 5,000 | |
| • Provision for Doubtful Debts (5% on Rs. 1,05,000 - Rs. 5,000 = Rs. 1,00,000) | 5,000 | |
| • Depreciation on Furniture (10% of Rs. 40,000) | 4,000 | |
| • Depreciation on Machinery (10% on 1,20,000 for 1 yr + 10% on 30,000 for 6 mos) | 13,500 | |
| • Outstanding Salary | 6,000 | |
| • Outstanding Interest on 10% Bank Loan (10% of Rs. 40,000) | 4,000 | (37,500) |
| Net Profit for the Year | 51,000 |
3. Revised (Final) Statement of Affairs of Mr. Binod Thapa
As on the Last Day of Ashadh 2082
| Liabilities | Details (Rs.) | Amount (Rs.) | Assets | Details (Rs.) | Amount (Rs.) |
|---|---|---|---|---|---|
| Opening Capital | 2,70,000 | Cash in Hand | 25,000 | ||
| Add: Additional Capital | 30,000 | Cash at Bank | 45,000 | ||
| Add: Net Profit for the year | 51,000 | Sundry Debtors | 1,05,000 | ||
| Less: Drawings | (36,000) | 3,15,000 | Less: Bad Debts | (5,000) | |
| 10% Bank Loan | 40,000 | Less: Prov. for Doubtful Debts (5%) | (5,000) | 95,000 | |
| Sundry Creditors | 65,000 | Stock of Goods | 90,000 | ||
| Outstanding Salary | 6,000 | Prepaid Insurance | 2,500 | ||
| Outstanding Interest on Loan | 4,000 | Furniture (40,000 - 4,000) | 36,000 | ||
| Machinery (1,50,000 - 13,500) | 1,36,500 | ||||
| Total | 4,30,000 | Total | 4,30,000 |
9.4 NEB Board Exam Practice Questions
Group A: Very Short Answer Questions (1 Mark Each)
- Define the Single Entry System of book-keeping.
- What is a Statement of Affairs?
- Why can a Trial Balance not be prepared under the Single Entry System?
- State the formula for finding Unadjusted Profit under the Net Worth Method.
- If Opening Capital is Rs. 1,20,000, Closing Capital is Rs. 1,65,000, Drawings are Rs. 20,000, and Additional Capital is Rs. 35,000, find the Profit for the year.
Group B: Short Answer & Numerical Questions (5 Marks Each)
- Differentiate between the Single Entry System and Double Entry System on any five bases.
- Differentiate between a Statement of Affairs and a Balance Sheet.
Worked answers to these exercises are in Chapter 9 Solutions.