Chapter 9 Solutions: Single Entry System (Accounting from Incomplete Records)
Answers to the Chapter 9 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, five clear points or a five-row table for 5 marks, and full working for numerical problems.
Group A: Very Short Answer Questions (1 Mark Each)
1. Define the Single Entry System of book-keeping.
The Single Entry System (accounting from incomplete records) is any system of book-keeping that does not strictly follow the dual-aspect principle of the Double Entry System; usually only a Cash Book and the personal accounts of debtors and creditors are kept, while real and nominal accounts are ignored.
2. What is a Statement of Affairs?
A Statement of Affairs is a statement of the assets and liabilities of a business that keeps its books under the Single Entry System, prepared on a particular date to find its capital as the balancing figure (Capital = Assets - Liabilities).
3. Why can a Trial Balance not be prepared under the Single Entry System?
A Trial Balance cannot be prepared because both the debit and credit aspects of every transaction are not recorded: only the Cash Book and personal accounts are kept, and real and nominal accounts are missing, so the ledger balances cannot give equal Debit and Credit totals.
4. State the formula for finding Unadjusted Profit under the Net Worth Method.
Unadjusted Profit = Closing Capital + Drawings - Additional Capital - Opening Capital.
5. 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.
Profit = Closing Capital + Drawings - Additional Capital - Opening Capital = 1,65,000 + 20,000 - 35,000 - 1,20,000 = 30,000. The profit for the year is Rs. 30,000.
Group B: Short Answer & Numerical Questions (5 Marks Each)
1. Differentiate between the Single Entry System and Double Entry System on any five bases.
Under the Single Entry System, usually only a Cash Book and the personal accounts of debtors and creditors are kept, so the records are incomplete. The Double Entry System records both the debit and credit aspects of every transaction in personal, real and nominal accounts. They differ as follows:
| Basis of Difference | Single Entry System | Double Entry System |
|---|---|---|
| Dual aspect | Records only one aspect of some transactions and ignores other transactions altogether | Records both the debit and credit aspects of every transaction |
| Accounts maintained | Only the Cash Book and the personal accounts of debtors and creditors | Personal, real and nominal accounts completely |
| Trial Balance | Cannot be prepared, so the arithmetical accuracy of the books cannot be checked | Is prepared regularly to check the arithmetical accuracy of the books |
| Ascertainment of profit or loss | Profit or loss is only estimated through a Statement of Profit or Loss (Net Worth Method) by comparing capitals | True gross profit and net profit are found through the Trading and Profit & Loss Account |
| Financial position | Only an estimated Statement of Affairs is prepared, with assets valued by physical inspection | A true and verified Balance Sheet is prepared from ledger balances |
The Double Entry System is also the one accepted by tax authorities, banks and NFRS, while records kept under the Single Entry System are not.
2. Differentiate between a Statement of Affairs and a Balance Sheet.
A Statement of Affairs is a statement of assets and liabilities prepared from incomplete records under the Single Entry System to find the capital of the business. A Balance Sheet is a statement of assets, liabilities and capital prepared from the ledger balances kept under the Double Entry System to show the true financial position of the business on a particular date. They differ as follows:
| Basis of Difference | Statement of Affairs | Balance Sheet |
|---|---|---|
| System of accounting | Prepared under the Single Entry System (incomplete records) | Prepared under the Double Entry System |
| Objective | Mainly to find the capital of the business at the beginning or end of the year, so that profit can be estimated by comparing capitals | To show the true financial position of the business at the end of the accounting year |
| Source of information | Prepared from the Cash Book, personal accounts, vouchers, physical inspection and estimates | Prepared from the ledger balances listed in the Trial Balance |
| Capital figure | Capital is the balancing figure (Assets - Liabilities) | Capital is taken from the Capital Account (opening capital plus profit, less drawings) |
| Reliability | Only an estimate; an asset or liability left out simply changes the capital figure and goes unnoticed | Accurate and reliable, because it comes from verified ledger balances; an item left out makes the two sides disagree |
Under the Single Entry System, the closing Statement of Affairs is revised after the year-end adjustments into a Revised (Final) Statement of Affairs, which is set out like a Balance Sheet but still rests on estimated figures.