The document discusses single entry system of accounting. It defines single entry system and explains its key features. Single entry system maintains accounts for debtors and creditors only and does not follow strict double entry principles. The document outlines two methods to calculate profit or loss under single entry system - statement of affairs method and conversion method. The statement of affairs method calculates profit by comparing opening and closing capital. The conversion method converts single entry records to double entry format to determine accurate profit. Sample problems are provided to demonstrate the application of these methods.

1. FINANCIAL ACCOUNTING
Prepared by
Ranjitha. K.A
Assistant professor
Dept of commerce (IB)

2. SINGLE ENTRY SYSTEM OF ACCOUNTING
Meaning and definition of single entry
Single entry system is a system of accounting which does
not follow the double entry system. Under this system
only the accounts related to debtors and creditors are
maintained. It is mixed up by both business transactions
and personal transactions. Real accounts and nominal
accounts are ignored. Single entry system is also known
as accounts from incomplete records.
According to Kohler, “ single entry system is a system of
bookkeeping in which As a rule only records of cash and
personal accounts are maintained. It is always
incomplete double entry wearing with circumstances”.

3. Objectives of single entry system
1. To record business transactions
2. To open accounts and to obtain the balances
3. To prepare a trial balance
4. To ascertain the profit or loss of a business
5. To ascertain the financial position of a business.
Features of single entry system
 It does not follow strict double entry system.
 It is an incomplete, inaccurate,unscientific,
unsatisfactory and unreliable system of bookkeeping.
 It is flexible.
 It is suitable to small concerns

4.  It does not provide complete picture of each and every
transaction. Hence it is called defective double entry
system.
 It maintains personal accounts and cash accounts. It
avoids real and nominal accounts.
 The system differ from form to form it is an
adjustment of double entry system according to
convenience of the business.
Advantages or Merits of single entry system
 It is a simple method of accounting.
 It is less costly and economical.
 It is suitable for small Enterprises.
 It is possible to record transactions quickly.
 It is highly flexible.

5. Limitations or demerits of single entry system
 It is incomplete, unscientific and unsystematic.
 Trial balance cannot be prepared. Hence arithmetical
accuracy cannot be checked.
 Nominal accounts are not maintained. Hence true
profit or loss cannot be ascertained.
 It does not keep a record of all Assets and liabilities.
Therefore a balance sheet cannot be prepared to know
the financial position of the business.
 It is not suitable for large concerns.
 It is not acceptable to Income Tax authorities.
 It is difficult to detect errors and frauds, because
accounts are incomplete.
 It is difficult to value the Goodwill of the business at
the time of sale of existing business.

6. Types of single entry system
There are three types of single entry system. They are as
follows:
1. Pure Single entry system: Under this system, no
subsidiary books are maintained. Only personal
accounts of debtors and creditors are maintained.
2. Simple single entry system: Under this system
cash books and personal accounts of debtors and
creditors are maintained. Other subsidiary books are
not maintained.
3. Quasi single entry system: Under this system
personal accounts, cash book and some subsidiary
books are maintained.

7. Ascertainment of profit or loss
There are two methods of calculating profit or loss under
single entry system. They are:
1. Statement of affairs method or net worth method or
capital comparison method.
2. Conversion method.
Statement of affairs method or net worth method
Under this method profit is ascertained by comparing
the capital at the beginning and the capital at the end of
an accounting period.
Profit = Closing capital – Opening capital

8. According to this method, the profit or loss made by the business is computed
by comparing the capital of the business on two different dates. The
following procedure is followed:
1) A statement of affairs at the beginning of the year is prepared to ascertain
capital at the beginning.
2) Closing statement of affairs is prepared to ascertain capital at the end.
3) Profit can be ascertained :
Statement of profit or loss
Particulars
Capital at the end( closing capital)
Add: Drawings
Less: Additional capital introduced
Adjusted capital at the end
Less: Capital at the beginning(Opening
capital)
Profit made during the year
Amount
xxx
xxx
xxx
xxx
xxx
xxx

9. Format of Statement of affairs method
Statement of Affairs as at….
Liabilities
Sundry creditors
Bills payable
Outstanding expenses
Bank overdraft
Capital (Balancing
figure)
Amount
xxx
xxx
xxx
xxx
Xxx
xxx
Assets
Cash in hand
Cash at bank
Sundry Debtors
Bills Receivable
Stock in trade
Prepaid expenses
Furniture
Land & Building
Machinery
Amount
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx

10. Difference between profit and loss A/c and
statement of profit and loss.
Profit and loss A/c Statement of profit and
loss
• It is an account.
• It is prepared under double
entry system.
• It starts with gross profit or
loss.
• It shows the exact profit or
loss.
• It is prepared from ledger
account balances only.
. It takes into account purchase,
sales and all expenses and
income for ascertaining profit
or loss.
• It is a statement.
• It is prepared under single
entry system.
• It starts with closing capital.
• It does not show that sat
profit and loss.
• It is prepared Partly from
ledger account balances and
partly from estimates,
physical verification .
• It takes into account closing
and opening capitals for
ascertaining profit or loss.

11. Difference between statement of affairs and
balance Sheet
Statement of affairs Balance sheet
• It is prepared under single entry
system
• The values of assets and
liabilities shown in this
statement are taken partly from
the actual records and partly
from estimates.
• The financial position as shown
by this statement is not reliable
• It is prepared to find out capital
and profit or loss
• It is prepared by the small
concerns which have very few
transactions
• Trial balance is not prepared
before its preparation
• Each is prepared under double
entry system
• The values of assets and
liabilities Sean in his statement
are taken from actual records
only.
• The financial position as shown
by this statement is reliable
• It is prepared to ascertain the
financial position
• It is prepared by the big
concerns which have large
number of transactions.
• Trial balance is prepared before
its preparation.

12. Problem 1
Find out profit from the following data
Capital at the beginning of the year 8,00,000
Drawings during the year 1,80,000
Capital at the end of the year 9,00,000
Capital introduced during the year 50,000

13. Solution:
Statement of profit
Particulars
Capital at the end
Add: Drawings
Less: Additional capital introduced
Less: Capital at the beginning
Net profit
Amount
9,00,000
1,80,000
10,80,000
50,000
10,30,000
8,00,000
2,30,000

14. Problem 2
Mr. A commenced business with a capital of Rs. 12000 on
1st January 2019. Subsequently he introduced further
capital of Rs. 5000. During the year, he has withdrawn Rs.
2000 for his personal use. On 31-12-2019, his assets and
liabilities were as follows:
Cash at bank 3000
Debtors 4000
Stock 16000
Furniture 2000
Creditors 5000
Calculate profit/loss made during the year 2019.

15. Solution:
 Calculation of closing capital
Statement of affairs of Mr. A as on 31.12.2019
Liabilities
Creditors
Capital (Bal.fig)
Amount
5000
20,000
25000
Assets
Cash at bank
Debtors
Stock
Furniture
Amount
3000
4000
16,000
2,000
25000

16. Statement of profit /loss for the year 31.12.2019
Particulars
Closing capital
Add: Drawings
Less: Additional Capital
Less: Opening capital
Net profit
Amount
20,000
2000
22000
5000
17000
12000
5000

17. Problem no: 3
Mr. Mano keeps his books of accounts under single entry system.
During the year he introduced additional capital of Rs. 20000.His
financial position on 31-12-2019 and 31-12-2020 was as follows:
From the above particulars, you are required to prepare a statement of
profit and loss for the year ended 31-12-2020.
Particulars 31-12-2019 31-12-2020
Cash 9860 800
Stock in trade 38520 57020
Plant& Machinery 54420 61000
Bills Receivable - 16480
Sundry debtors 24840 43940
Sundry creditors 72040 80000
Furniture 4960 5220
Drawings - 5000

18. Solution:
Calculation of capital at the beginning
Liabilities
Sundry creditors
Capital(Bal.fig)
Amount
72040
60560
132600
Assets
Cash
Stock in trade
Plant& Machinery
Sundry debtors
Furniture
Amount
9860
38520
54420
24840
4960
132600
Statement of affairs as on 31-12-2019

19. Calculation of capital at the end
Liabilities
Sundry Creditors
Capital(Bal.fig)
Amount
80000
104460
184460
Assets
Cash
Stock in trade
Plant& Machinery
Sundry debtors
Furniture
Bills Receivable
Amount
800
57020
61000
43940
5220
16480
184460
Statement of affairs as on 31-12-2020

20. Statement of profit/loss for the year ended 31-12-2020
Particulars Amount
Closing capital
Add: Drawings
Less: Additional capital
Less: Opening capital
Profit made during the year
104460
5000
109460
20000
89460
60560
28900

25. Conversion method or Final Accounts Method.
(Conversion of Single Entry into Double Entry)
The conversion method involves converting accounting
from a single-entry system to a double-entry system.
Objectives of Conversion:
1. To find out correct profit.
2. To find out true and fair financial position of
business.
3. To make accounting ideal and reliable.
4. To measure accuracy of accounting records.
5. To overcome the defects of the single entry system.

26. STEPS IN CONVERSION:
Ascertaining Missing information:
a. Preparation of opening statement of affairs to find out
opening capital
b. Preparation of B/R Account: Find out B/R received during
the year.
c. Preparation of B/P Account:Find out B/P issued during the
year.
d. Debtors Account: Find out opening debtors or closing
debtors or cash received from debtors or credit sales.
e. Creditors Account: Find out opening creditors or closing
creditors or cash paid to creditors or credit purchase.
f. Memorandum cash account.
g. Memorandum trading account.
h. Profit and loss account.

27.  Ascertainment of sales: Sales includes cash sales and
credit sales.
Total sales = Cash sales + Credit sales
Credit sales can be found by preparing Total Debtors A/c.
Proforma of Total Debtors Account
Particulars
Amount
Particulars Amount Particulars Amount
To Balance b/d(Opening
balance of debtors)
xxx By Cash ( Received from
debtors)
xxx
To Bills receivable
(Dishonoured)
xxx By B/R received xxx
To Cash refund to debtors xxx By sales return/Return
inwards
xxx
To Credit sales (Bal.fig) xxx By Bad debts xxx
By Discount allowed xxx
By Balance c/d (Closing
balance of debtors)
xxx
xxx

28. Eg problem:
From the following data, ascertain total sales:
Balance of debtors on 1-1-2019 24000
Sales returns or Return inwards 10000
Cash received from customers 90000
Discount allowed 6000
B/R received 34000
Bad debts. 3000
B/R dishonoured. 7000
Balance of debtors on 31-12-2019 20000
Cash sales. 50000

29. Solution:
Total Debtors A/c
Particulars Amount Particulars Amount
To Balance b/d 24000 By Cash 90000
To B/R
Dishonoured
7000 By Discount
allowed
6000
To Credit
sales( Bal. fig)
132000 By B/R received 34000
By Bad debt 3000
By sales returns 10000
By Balance c/d 20000
163000 163000

30. Total sales = Cash sales + Credit sales
= 50000+132000= 182000
 Ascertainment of purchases: Purchases include
cash purchases and credit purchases.
Total purchases = Cash purchases +credit Purchases
Credit purchase can be ascertained by preparing Total
Creditors Account.

31. Proforma of Total Creditors A/c
Particulars Amount Particulars Amount
To cash (Paid to
creditors)
xxx By Balance b/d xxx
To B/P given or issued xxx By B/P
(Dishonoured)
xxx
To Discount Received xxx By Credit purchase
(Bal.fig)
xxx
To Purchase Return or
Return outward
xxx
To Balance c/d xxx
xxxx xxxx

32. Eg Problem:
From the following information, ascertain total
purchases:
Balance of creditors on 1-01-2019. 14000
Cash paid to creditors. 10000
B/P given or Bills accepted. 10000
Discount received 500
Return outward or purchase return. 3000
Creditors as on 31-12-2019. 25000
Cash purchases. 10000

33. Solution:
Total creditors A/c
Total purchases= Cash purchases+ credit purchases
= 10000+34500 = 44500
Particulars Amount Particulars Amount
To cash 10000 By balance b/d 14000
To B/P 10000 To credit purchase
(Bal. fig)
34500
To Discount
Received
500
To Return outward 3000
To Balance c/d 25000
48500 48500

34.  Ascertainment of bills receivable: by preparing bills
receivable account we can find out bills receivable at
the beginning or at the end or bills receivable received
during the year.
Proforma of Bills Receivable A/c
Particulars Amount Particulars Amount
To Balance b/d ( Opening
balance)
XXX By cash received against
bills
XXX
To Sundry Debtors
(B/R received during the
year) (Bal. Fig)
XXX By Sundry Debtors
( B/R dishonoured)
XXX
By Balance c/d ( Closing
balance)
XXX
XXX XXX

35.  Ascertainment of bills payable: by preparing bills
payable account we can find out the missing figures
such as bills payable at the beginning, bills payable at
the end and bills payable issued during the year.
Proforma of Bills payable A/c
Particulars Amount Particulars Amount
To cash paid on bills XXX By Balance b/d ( Opening
balance)
XXX
To Sundry creditors (B/P
dishonoured)
XXX By Sundry creditors( B/P
issued or acceptance) ( Bal.
Fig)
XXX
To Balance c/d ( Closing
balance)
XXX
XXX XXX

36. Eg Problem 1
Calculate Total Sales from the following
information:
 Bills Receivables as on 1st April, 2017 – Rs. 7,800
 Debtors as on 1st April, 2017 – Rs. 30,800
 Cash received on maturity of Bills Receivable during
the year – Rs.20,900
 Cash received from Debtors – Rs. 70,000
 Bad Debts written off – Rs.2,800
 Returns Inward – Rs. 8,700
 Bills Receivable dishonoured – Rs. 1,800
 Bills Receivable on 31st March, 2018 – Rs. 6,000
 Debtors as on 31st March, 2018 – Rs. 25,500
 Cash Sales during the year – Rs.40,900

37. Solution:
Bills Receivable A/c
Total Debtors A/c

38. Total sales = Cash sales + credit sales
= 40900 + 95300
= 1,36,200
Eg Problem 2
From the following details find out the credit purchases
and total purchase.

39. Bills payable A/c
Total Creditors A/c

40. Total purchases = Credit purchases + Cash purchases
= 30800 + 29000
= 59800.