CHAPTER 11
ACCOUNTING - SINGLE ENTRY BOOK KEEPING
Single entry book-keeping is a term which is in many cases very loosely employed without any real regard to the exact nature of the book keeping system in question. Single entry is discussed in this chapter under two headings
1. Pure single entry.
2. Single entry in the popular sense.
Pure Single Entry
Under this system the twofold aspect of each transaction as considered in the double entry systems is ignored. The essential characteristic of this system is the keeping of Personal Accounts only; that is, no Real or Nominal Accounts find a place in the books of account. Such a book keeping method is incomplete and unsatisfactory and it is clear that accurate information of the operations of the business is entirely lacking. When the pure single entry system is in use the profit or loss for a period is ascertained by comparing the capital at the end of the period with... adjustments made at the beginning of the period for withdrawals or introductions of capital. If the 'closing capital exceeds the opening capital, such excess is considered to be profit. for the period, and if the opening capital exceeds the closing capital, such excess is considered to be a loss for the period, subject to the adjustments mentioned above. Capital is, of course, the excess of assets over liabilities when considered for this purpose.
Illustration 1
Capital at 1st January 19... Capital at 31st December 19...
1,000
1,500
The profit for the year ended 31st December 19.., is therefore £500, ie. £1,500-£1,000.
Capital at 1st January 19..
f
800
Capital at 31st December 19...
600
The loss for the year ended 31st December 19... is therefore £200 (ie.
EN00-£600).
Two very important points requiring adjustment in ascertaining the profits under pure single entry are additions to, and withdrawals of, capital. As explained above, any increase of capital during the period is considered as profit, and any decrease as loss; but capital introduced from outside sources cannot be considered in the light of profit, and must consequently be added to losses or deducted from profits when ascer tained as above, and withdrawals similarly cannot be considered as losses hut must be either added to profits or deducted from losses.
ACCOUNTANCY
The rule in regard to the adjustment for withdrawals of capital may be be (a) added to the increase of capital or (b) deducted from the decrease shortly stated thus-In order to ascertain profit or loss withdrawals must Introductions of capital must be adjusted in exactly the converse must be (a) deducted from the increase of capital, or (b). added to the manner, e.g. in order to ascertain profit or loss, introductions of capital
of capital.
decrease of capital.
The following example illustrates the principles enunciated:
Illustration 2
A
B
C
Business
£
£
£
£
1,000
2.200
1,600
1,000
2,000
2,000
1,500
400
400
1,200
600
200
400
700
Opening Capital
Closing Capital.
Drawings
Introduction of Capital
The results of the businesses as regards profit or loss are as follows:
Business A: £2,000-£1,000 £1,000+£400-£600 £800 Profit
B: £2,000-£2,200=-£200+£400
C: £1,500-£1,600-£100-£200 D: £1,200-£1,000 £200+ £400-£700
"
= £200 £100 = £300 Loss
Preparation of Statement of Profit. In practice, the following method is adopted (1) The opening and closing statements of affairs are compiled and from them the opening and closing capitals are obtained. As no records of Real Accounts are kept in the books, such statements will have to be prepared from information supplied by the proprietor himself, and from such other data as may be available. (2) Totals are made of withdrawals and introductions of capital during the period. (3) The particulars so obtained are present in double entry form by opening two accounts called 'Statement of Profit' and 'Capital Account; and such are compiled by applying the principles already outlined which may be summarized as follows:
(a) Debit Statement of Profit and credit Capital Account for the opening capital; vice versa for deficiency, i.e. where liabilities exceed
assets.
(b) Debit Statement of Profit and credit Capital Account for capital
introduced during the period.
(c) Debit Capital Account and credit Statement of Profit for withdraw. als of capital during the period.
(d) Credit the Statement of Profit with the closing capital, as disclosed by the closing Statement of Affairs, and bring this figure down as a debit
balance on this account.
SINGLE ENTRY
(e) Transfer the balance of the Statement of Profit to the debit (or credit) of Capital Account according as a loss (or profit) has resulted. In subsequent years, the same procedure as regards (b), (c), (d), and (e) only will be followed, as the credit balance of Capital at the commence- ment of each year will equal the debit balance on Statement of Profit brought down from the preceding year.
The credit balance on the Capital Account will now be similar to the debit balance brought down on the Statement of Profit.
The capital figure represents the excess of assets over liabilities, or vice versa, and the accounts may be presented in Balance Sheet form under the heading of 'Statement of Affairs'.It is common practice to prepare a Statement of Affairs at the start of the period to determine the amount of opening capital.If it of Profit, it is necessary to bring down the closing capital intact, i.e. at the full figure, to debit separately the depreciation or other provision to the Statement of Profit, bringing such provision down separately as a credit balance, and finally to offset these balances and bring down the net balance on the Statement of Profit which will correspond with the balance shown by the Capital Account.
Illustration 3
X keeps his books on the single-entry principle. The following information is disclosed:
Fixtures and Fittings
Stock
Debtors
Cash
Creditors
Bills Payable
Assets and Liabilities
Loan by Y
Investments at 31st December 19..
1st Jan. 19...
31st Dec. 19..
£
£
2,000
2,000
1,000
1,250
2,100
3,400
150
200
1,750
1,900
Nil
300
Nil
500
Nil
1,000
X has drawn £500 on account of his profits. Fixtures and Fittings are to be written down to £1,800 and the proprietor wishes to create a Bad Debts Provision of 10 per cent on debtors.
A Statement of Affairs is drawn up at 1st January 19... from which the opening capital is ascertained. The closing capital (before providing for depreciation and bad debts) will be obtained by deducting the liabilities. from the assets, since the Capital Account is not overdrawn, and from the information thus obtained a Statement of Profit will be drawn up and finally a detailed Statement of Affairs at 31st December 19...
£
Sundry Creditors
1.750
Balance, being Capi-
ACCOUNTANCY
STATEMENT OF AFFAIRS AS AT 1ST JANUARY 19..
Fixtures and Fittings
Stock
tal at this date
3,500
Sundry Debtors
Cash
£5,250
The capital at the close of the period is ascertained thus:
ASSETS:
Fixtures and Fittings
£
2,000
Stock.
Debtors
Cash
Investments.
1,250
3,400
200.
1,000
7,850
LIABILITIES:
Creditors
1,900
Bills Payable
300
Loan by Y
500
2,700
Capital at 31st December 19.'
£5,150
The Statement of Profit will be as follows:
STATEMENT OF PROFIT FOR THE YEAR ENDED
31ST DEMBER 19..
2.000
1,000
2.100
150
£5.250
19.. Jan. 1
Opening Capital
b/d
Dec. 31
Depreciation
£ 3,500
£200
19. Dec. 31
Had Dehts Pro-
Drawings Closing Capital
500
c/d
5,150
vision
340
c/d
Balance-Net Profit
transferred to Capital
540
Account
1,610 £5,650
Closing Capital
hd
5.150
£5,150
19.
Jan. 1
Balance
bid 4,610
Depreciation and Bad Debts Provision. Balance
£5.650
b/d
540
c/d
4,010
45.150
SINGLE ENTRY
CAPITAL
1105
19.. Dec. 31
£
19.
Drawings Balance
500
£
Jan. 1
c'd
Balance
4,610
Dec. 31
b/d
3,500
Statement of Profit- Net Profit
1,610
£5,110
£5,110
192 Jan.
1
Balance
b/d
4,610
'Before providing for depreciation and bad debts.
Following year.
STATEMENT OF AFFAIRS AS AT 31ST DECEMBER 19..
£
Sundry Creditors.
£
1,900
Fixtures and Fittings
£2,000
Loan
Bills Payable
500 300
Less Depreciation 200
Capital at 1st Jan.
1,800
Stock.
1,250
19.
£3,500
Sundry Debtors £3,400
Less Drawings
500
Less Provision
340
3,060
3,000
Investments
1,000
Add Net Profit 1,610
Cash
200
4,610 £7,310
£7,310
Students should be very careful to avoid stating that one of the methods of ascertaining profits and losses under pure single entry is by conversion to double entry, as this cannot be done when pure single entry is in force. Should, however, adequate records be available, then the results obtaina- ble arise from double entry and not single entry.
Single Entry in the Popular Sense
Single entry in the popular sense or quasi single entry are terms covering gumerous systems of book-keeping which, though differing one from the other in detail, are all characterized by one common feathe, viz. the lack of completeness of the double entry.
It may be that a Cash Book is kept, but no Day Books or Journals, even though the business is not entirely on a cash basis; or it may be that no Personal Accounts are kept, or that full Personal Accounts are written up on double entry lines, but no Nominal Accounts kept. In short, whenever the system employed is such that a Trial Balance cannot ensue from the books, it cannot be accurately described as a double entry system. From this, however, it should not be inferred that because the formal Day Books or Journals are not kept that the full double entry results cannot be achieved, for many 'short cut' methods are employed as a means to Complete the double entry.
Therefore, whenever a system is in force which goes beyond the keeping of Personal Accounts yet falls short of a complete system of double entry.
The totals of the subsidiary books or journals will be posted to the appropriate side of the respective nominal accounts, and the totals of the discount columns in the Cash Book transferred to the Discount Aus The Cash Book will now be scrutinized for unposted items, all of which will now be posted to the appropriate accounts which will generally be Nominal or Real Accounts, eg Rates paid, Additions to Plant, Dividends and Rents received Occasionally, it will be found that withdrawals of cash by the proprietor have not been posted or even entered in the Cash Book The degree of incompleteness of the double entry and the data available for bridging the gap must necessarily vary in every business, so that an attempt to lay down a detailed formula would be mont misleading and futile. As a rule, however, it is first essential to obtain the opening figures (through the Statement of Affairs) and to open the necessary accounts record them, including Capital Accounuh the exception of the Cash and Bank items, and Debtors and Creditors, which are already receded in the books, secondly, each book or journal of original entry must be dea with separately, the double entry being completed by posting the necessary figures. If any of these books or journals are not completely written up it will be necessary to enter the missing items.
Before dismissing the matter an instance may be taken where the full double entry exists except that the Bought Ledger is compiled direct from the invoices and credit notes, and from the Cash Book in the usual way. It will readily be perceived that the Purchases and Returns figures must be extracted from the Bought Ledger. The Purchases Account will be debited with the ascertained total, and the Purchases Returns Account will be similarly credited. This may be illustrated by a simple example, as there is no difference in principle whatever between such an example and one which embraces a considerable number of detailed Ledger Accounts.
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