The usual subsidiary books maintained under the double entry system of book-keeping are also maintained under the single entry system, but the postings are made from these subsidiary books of those entries which affect personal accounts. Real and nominal accounts are not maintained under this system. Since only one aspect of every transaction is usually recorded under this system, therefore, the system 1s called 'single entry system'. It should be noted that single entry system is not any particular system of book-keeping, but rather the double entry system in an incomplete and disjointed form.
Disadvantages of single entry system
1. Since the two-fold aspect of every transaction is not recorded in the books of accounts, therefore, the arithmetical accuracy of the books of accounts cannot be ascertained by means of a trial balance.
2. It is not possible to obtain accurate information regarding the results of business operations, as under single entry system, nominal accounts relating to losses, expenses, gains and incomes have not been maintained. In the absence. of these accounts, necessary classified information required for preparing pr9fit and loss account is not available. Hence profit and loss account cannot be prepared.
3. Information relating to assets and liabilities cannot be reliable because respective accounts have not been maintained. Thus, even balance sheet cannot be prepared. Consequently, true financial position of the business cannot be ascertained.
4. In the absence of various checks, fraud is more easily committed and it is very difficult to detect.
Ascertaining profit under the single entry system
Under the single entry system of book-keeping, it is not possible to prepare a regular trading and profit & loss account, because no record is kept of the nominal accounts, therefore, the exact profit or loss for a particular period cannot be ascertained. The net profit for a particular period can be ascertained in a rough manner by comparing the financial position of the business at the commencement of the period with the financial position at the end of the period. This requires the preparation of two statements of affairs, one in the beginning and the other at the end.
Opening and closing balances of capitals can be the ascertained by preparing statement of affairs, and comparison of the capitals at the two dates will reveal either profit or loss.
Preparation of a statement of affairs
A statement of affairs (for this purpose is a document in the form of a balance sheet, showing on right hand side the amounts (estimated) of the various assets and on the left hand side the estimated amounts of liabilities. The difference of the two sides represents capital of the owner i.e. net worth. .
0 Comments Received
Post a Comment