Nani FA1st(Theory)

8/12/2019 Nani FA1st(Theory)

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1 BY: VIKRAM.G.BLecturer, P.G Dept of CommerceVivekananda Degree College, Bangalore-55

Unit 1Conversion of Single Entry to Double Entry

MEANING:All business transactions are has two aspects namely Debit and Credit, If these two aspects of a transactionare recorded, which system is known as the Double entry system.The term single entry is vaguely used to refer to any method of maintaining accounts which does notconform to strict principles of double entry system, under single entry method only one aspect of atransaction is recorded, it may be debit without a corresponding credit and vice versa.

This system is not based on any scientific system therefore it cannot be termed as a system, It isincomplete and unsatisfactory system and it is clear that accurate information of the operations of thebusiness is entirely lacking.Single entry system is a system of accounting, which does not follow the double entry system. Under thissystem, accounts relating to debtors and creditors are maintained.

DEFINITION:

Kohler defines single entry system as a system of book keeping which as a rule only records of cash andpersonal accounts are maintained, it is always incomplete double entr y varying with circumstances

According to R.N.Carter Single entry cannot be t ermed as a system, as it is not based on any scientificsystem, like double entry system. For this purpose, single entry is now-a-days known as preparation ofaccount from incomplete records

MEANING OF DEBIT AND CREDITThe word debit is derived from the Latin word Debitum which means Due for that. In short, the benefitreceiving aspect of a transaction is known as debit . The word credit is derived from the Latin word Creder

which means Due to that. In short, the benefit giving aspect of a transaction is known as credit .

The abbreviations Dr for debit and Cr for credit are usually used. By convention, the left hand side ofan account is termed as debit and right hand side of an account is termed as credit side.

FEATURES OF SINGLE ENTRY SYSTEM:a. Maintenance of books by a sole trader or partnership firm: The books which are maintained according

to this system can be kept only by a sole trader or by a partnership firm.b. Maintenance of cash book: In this system it is very often to keep one cash book which mixes up

business as well as private transactions.

c.

Only personal accounts are kept: In this system, it is very common to keep only personal accounts andto avoid real and nominal accounts. Therefore, sometimes, this is precisely defined as a system whereonly personal accounts are kept.

d. Collection of information from original documents: For information one has to depend on originalvouchers, example, in the case of credit sales, the proprietor may keep the invoice without recording itanywhere and at the end of the year the total of the invoices gives an idea of total credit sales of thebusiness.

e. Lack of uniformity: It lacks uniformity as it is a mere adjustment of double entry system according tothe convenience of the person.

f. Difficulty in preparation of final accounts: It is much difficult to prepare trading, profit and loss accountand balance sheet due to the absence of nominal and real accounts in the ledger.


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DIFFERENCE BETWEEN SINGLE ENTRY SYSTEM AND DOUBLE ENTRY SYSTEM:The distinctions between double entry system and single entry system are as follows:

I. In double entry system both the aspects (debit and credit) of all the transactions are recorded. But insingle entry system, there is no record of some transactions; some transactions are recorded only inone of their aspects whereas some other transactions are recorded in both of their aspects.

II. Under double entry system, various subsidiary books such as sales book, purchases book etc., aremaintained. Under single entry system, no such subsidiary books except cash book which is also

considered as a part of ledger is maintained.III. In the case of double entry system, there is a ledger which contains personal, real and nominal

accounts. But in single entry system, the ledger contains some personal accounts only.IV. Under double entry system, preparation of trial balance is possible whereas it is not possible to prepare

a trial balance in single entry system. Hence accuracy of work is uncertain.V. Under double entry system, Trading A/c, Profit & Loss A/c and the Balance Sheet are prepared in a

scientific manner. But under single entry system, it is not possible only a rough estimate of profit orloss is made and a Statement of Affairs is prepared which resembles a balance sheet in appearance butwhich does not present an accurate picture of the financial position of the business.

BENEFITS OF SINGLE ENTRY SYSTEMA. Its quick and easy to maintain. B. One doesnt require employing a qualified accountant. C. This is extremely useful for business run by individuals where the volume of activity is not large,D. It is economical as it does not need a comprehensive record keeping.

WEAKNESSES OF SINGLE ENTRY SYSTEMa) As principle of double entry is not followed, the trial balance cannot be prepared. As such,

arithmetical accuracy cannot be guaranteed.b) Profit or loss can be found out only by estimates as nominal accounts are not maintained.c) It is not possible to make a balance sheet in absence of real accounts.d) It is very difficult to detect frauds or errors.e) Valuation of assets and liabilities is not proper.f) The external agencies like banks cannot use financial information. A bank cannot decide whether to

lend money or not.g) It is quite likely that the business and personal transactions of the proprietor get mixed.

CONVERSION METHODConversion of single entry in to double entry involves the complete process of journalizing, posting,balancing and preparation of trial balance. Then final accounts are to be prepared if any information ismissing, it should be ascertained by preparing the relevant accounts before preparation of final accounts

Following steps are taken1. Prepare statement of accounts in the beginning so as to ascertain capital in the beginning2. Prepare cashbooks, cashbook reveals missing figure cash or bank balance at the beginning or at the

end as the case may be. Sometimes cashbook reveals the amount of sundry expenses or drawingsor cash purchases(if credit side is shorter than debit) or cash sales or sundry incomes or capitalintroduced(if debit side is shorter than credit side)

3. Then prepare (1)total debtors account (2) total creditors account,(3) bills receivable account4. bills payable account(these accounts help in finding out credit sales, credit purchases, debtors or

credit balances5. After preparing these accounts, calculate total sales by adding credit sales and cash sales total

purchases by adding cash purchases and credit purchases


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6. Information relating to nominal accounts can be ascertained from the cashbook. Real accounts andamounts outstanding are given by way of information. These accounts can be completed

7. After these it will be possible to prepare final accounts in the usual manner

OPENING STATEMENT AFFAIRS:It is prepared with the help of assets and liabilities at the beginning to find out the opening capital. Whenthe opening balance of cash, debtors, creditors, stock etc., are not given in the problem, respective

accounts, must be prepared first and the balance ascertained must be taken in the preparation ofstatement of affairs. The following is the format of opening statement of affairs.

Liabilities Amount (Rs.) Assets Amount (Rs.)Bank OverdraftBills PayableCreditorsOutstanding expensesIncomes received inadvance

Capital (Balancing figure)

Cash in HandCash at BankBills ReceivableDebtorsStockPrepaid Expenses

Accrued IncomeFurniturePlant and MachineryVehicle

It is generally prepared to ascertain the opening balance of capital.

MEMORANDUM TRADING ACCOUNT:When the Gross profit or percentage of gross profit is given in the problem, then it is an indication that anyone of the Trading account item is missing. It could be opening stock or Total purchases or Closing stock orTotal sales. To ascertain that, memorandum Trading account must be prepared.

Format of memorandum trading Account Dr. Cr.Particulars Amount (Rs.) Particulars Amount (Rs.)

To opening stockTo purchase less: Returns OutwardsTo wagesTo freight (carriage inwards etc.,)To manufacturing expensesTo custom duty (clearance charges)To cold, gas, water, power, fuel etc.,

To other direct expensesTo gross profit

XXXXXXXXXXXXXXXXXXXXX

XXXXXXXXX

By sales Less: Sales returnsBy closing stock

XXXXXX

XXXTrading Account is prepared to ascertain any one of the following:

1. Opening stock2. Closing stock3. Purchases4. Sales5. Direct expenses

MEMORANDUM OF PROFIT AND LOSS ACCOUNT:When net profit is already given in the problem it is an indication that any one of the item of profit and lossaccount is missing. It could be sundry expenses or sundry incomes (in this case memorandum of P&L A/C isprepared before preparing cash book).


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Format of Memorandum of Profit and loss accountParticulars Amount (Rs.) Particulars Amount (Rs.)

To salariesTo rentTo commissionTo interestTo advertisement

To bad debtsTo discount allowedTo depreciationTo sundry expensesTo net profit

XXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXXXX

By gross profit b/dBy commission receivedBy discount receivedBy interest receivedBy rent received

By sundry incomes

XXXXXXXXXXXXXXX

XXX

XXXIt is prepared to ascertain any of the following:

1. sundry expenses2. sundry incomes

PREPARATION OF FINAL ACCOUNTS UNDER DOUBLE ENTRY SYSTEMWith the help of information provided and ascertained, Trading account and Profit & loss account andBalance sheet of the concern at the end of the year will be prepared.

Calculation of Profit on cost and sales:Based on the information provided in the problem, percentage of profit on cost must be converted intopercentage of profit on sales or vice versa.

Conversion tableProfit on cost Profit on sales

1/2 or 50% 1/3 or 33 1/3 %

1/3 or 33 1/3 % 1/4 or 25%1/4 or 25% 1/5 or 20%1/5 or 20% 1/6 or 16.67%

1/6 or 16.67% 1/7 or 14.29%1/7 or 14.29% 1/8 or 12.5%1/8 or 12.5% 1/9 or 11.11%

1/9 or 11.11% 1/10 or 10%

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Nani FA1st(Theory)