Introduction far150


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Introduction far150

  1. 1. INTRODUCTIONA single Entry System is a process of keeping and maintaining the account statement similarto chequebook record and single line accounting entry is done in the journal (daybook) foreach transactions. All transaction is described as negative or positive introduction. A singleentry system is not in reality any organization. It is just a try to maintain book of transactionthat are happen in business concern by an individual who do not have knowledge ofaccountancy. It is just an unfinished record which a small dealer is making who cannot openan account writer for the similar.Single entry system is difficult to define because, as a matter of fact there is exist no systemlike single entry system of book keeping. Generally, its a defective double entry system ofbook keeping. Some system that comes short of complete double entry method is calledsingle entry system of book keeping. Usually, a single entry system is used by sole-proprietorship.A sole proprietorship, also known as the sole trader or simply a proprietorship, is a typeof business entity that is owned and run by one individual and in which there is no legaldistinction between the owner and the business.The owner receives all profits (subject to taxation specific to the business) and has unlimitedresponsibility for all losses and debts. Every asset of the business is owned by the proprietorand all debts of the business are the proprietors. It is a "sole" proprietorship in contrastwith partnership.
  2. 2. i. There are many disadvanteges of keeping incomplete records such asunscientific and unsystematic. The single entry system is unsystematic andunscientific system of recording financial transactions. It does not have any set offixed rules and principals for recording and reporting the financial transactions.Besides, it can cause of frauds and error. Since the single entry system of book-keeping is incomplete, unscientific and unsystematic, it will not help us inchecking arithmetical accuracy of the books of accounts. Therefore, there isalways a possibility of committing frauds and errors in the books of accounts.ii. Five accounting concepts that applicable with Zaki’s business are consistency,dual entry system, matching, going concern, and periodicity. Consistencymeans once Zaki adopts an accounting principle or method, he should continue touse it until a demonstrably better principle or method comes along. Not followingthe consistency principle means that his business could continually jump betweendifferent accounting treatments of its transactions that makes its long-termfinancial results extremely difficult to discern. Next, the applicable concept inZaki’s business is dual entry concept. Dual aspect is the foundation or basicprinciple of accounting. It provides the very basis of recording the businesstransaction in the accounts books. This concepts assume that each transactionshas a dual effect. The recording of transactions are involving of debit and creditside in the the books of accounts. Besides, the other concept is periodicity.Periodicity requires all the transactions are recorded in the books of accounts onthe assumption that profits on these transactions are to be ascertained for aspecified period of time. Thus, Zaki needs to prepare a statement ofcomprehensive income and statement of financial position at regular time.However, Zaki also needs to apply going concern concept. Going concernconcept is we assume that the business will continue to carry on its activities foran indefinite period of time. Simply stated, it means that every business entity hascontinuity of life. Thus, it will not be dissolved in the near future. This is animportant assumption of accounting, as it provides a basis for showing the valueof assets in the balance sheet. For example, a company purchases a plant andmachinery of RM 100, 000 and its life span is 10 years. According to this conceptevery year some amount will be shown as expenses and the balance amount asan asset. Thus, if an amount is spent on an item which will be used in business
  3. 3. for many years, it will not be proper to charge the amount from the revenues ofthe year in which the item is acquired. Lastly, the applicable concept by Zaki’sbusiness is matching concept. Matching is the revenue and the expensesincurred to earn the revenues must belong to the same accounting period. Soonce the revenue is realised, the next step is to allocate it to the relevantaccounting period.iii. The other method of depreciation of non-current asset that can be used by Zaki’sbusiness is reducing balance method. The reducing balance method is thedepreciation is charged at a fixed rate like straight line method (also known asfixed installment method) but the rate percent is not calculated on cost of asset asis done under fixed installment method. It is calculated on the book value of asset.The book value of an asset is obtained by deducting depreciation from its cost.The book value of asset gradually reduces on account of charging depreciation.Since the depreciation rate per cent is applied on reducing balance of asset.The differentiation between straight line method and reducing balancemethod are :-Straight Line Method Reducing Balance MethodThe rate and amount of depreciationremain the same each year.The rate remains the same, but theamount of depreciation diminishesgradually.Depreciation rate per cent iscalculated on cost of assets eachyearDepreciation rate per cent iscalculated on book value of asset.The older the asset the larger the costof its repair but the amount ofdepreciation remain the same eachyear. Hence, the total of depreciationand repairs increases every year.This reduces annual profit gradually.The amount of depreciationdecreases gradually, while the cost ofrepairs increases. So, the total ofdepreciation and repairs remain moreor less the same each year. Hence, itcauses little or no change in annualprofit or loss.
  4. 4. The differences between Straight Line Method and Sum of The Digits Method are :Straight Line Method Sum of The Digits MethodThe rate and amount of depreciationremain the same each year