ContentsPage

Introduction of Single Entry and Incomplete Record

2

Business’ Problem 3Solutions:

i. Disadvantagesii. Accounting Conceptsiii. Method of Depreciationiv. Statement of Comprehensive

Incomev. Statement of Financial Position

44-66-7

8-1011

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Single Entry and Incomplete Record

According to Carter ‘Single Entry system is a method or a variety of methods,

employed for the recording of transactions, which ignore the two-fold aspect and consequently

fails to provide the businessman with the information necessary for him to be able to ascertain

the position’

Single Entry and Incomplete Record is one of the major problems that most businesses

may encounter in managing their accounts. However, they are still some business that

practicing single entry system since it has many advantages:

1) It is the simplest method of recording account’s transactions.

2) Do not need to hire a qualified staff and it will reduce the cost as well.

3) There are only a few assets and liabilities involved. Hence, it is totally applicable for

small businesses.

4) Flexible.

Basically, all businesses supposed to record their transaction in an appropriate way;

based on double entry system. However, there are several small businesses that do not have

recorded their transactions based on that system. Thus, it will affect the whole accounting

records which they are not able to prepare trial balance and financial statement; Statement of

Comprehensive income and Statement of Financial Position. Apart from that, they also do not

able to provide a complete set of final accounts without further analysis of the existence records.

It is due to lack of knowledge and expertise in accounting system as well as experience.

Sometimes, the owners of the business cannot differentiate the business account from

their personal transactions that may cause haywire in their business account. For example, they

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do not record the drawings that being made from business account and it is totally contradict to

entity concept. In addition, for large business, they may have a complete records of their

transaction, however it still have a chance of being destroyed, lost or misplaced. Thus, it will

result in incomplete records.

Business’ Problem

Zaki is operating his own business and he acts as a sole trader which he currently runs

the business on his own without any partners. Usually, this type of business is exists in the form

of small businesses only. Sole proprietorship is a type of organization that has only one owner,

unlimited liability, the owner owns all the profit and as well as incur all the debts. However, due

to his lackness of knowledge in managing business’ accounts, he does not know on how to

prepare a proper standard accounting records. Normally, this kind of organization may have the

same problem in managing and recording their business transactions. The reason is because

they have no expertise in accounting area as well as experience. Therefore, most small

business will face a similar problem; single entry and incomplete records.

Hence, Zaki has decided to get a professional in preparing his financial statement so

that he would be able to determine his profit or loss on that year. Thus, by ensuring the

accountant could manage his accounts, he has provided some information regarding his

transactions that occur on that period.

Through the information given, it is clearly informed that Zaki just started the business by

commenced his business with several assets; cash in hand amounted RM 2,000, bank

amounted RM 8,000, and non-current assets which amounted RM 50,000. Besides that, he also

provides the information regarding his business’ transactions during that period. However, after

being analyzed, it is not completed yet since there is a lot of missing information. For example,

he did not mention about his total purchases, sales and others.

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Therefore, it is the responsibility of professional accountant in ensuring that the

accurate financial statement is being prepared that may help Zaki in making further decision for

his business in future.

Disadvantages of keeping incomplete records

As mentioned earlier, there are several problems that business may incur in dealing with

keeping incomplete records along the business’ transactions. Plus, it also may increase the cost

because the owner has to hire a professional accountant to set up a proper system of recording.

The other disadvantages are as follows:

1. A great deal of useful information may be lost. Certain transactions may not be

accounted for and there is also no continuity in the recording of financial and other useful

information.

2. Difficulty in determining and assessing net profit or loss and net worth of the business as

details are not readily available.

3. Under this system only partial and incomplete record is maintained because two fold

aspects of transactions are generally ignored.

4. Trial Balance cannot be extracted to test the arithmetical accuracy of the records, due to

lack of information in double entry of each transaction.

5. There is possible to prepare a balance sheet/statement of Financial Position since

information on the assets and owner’s liabilities may be incomplete.

Five accounting concepts

1) Duality Concept

Through the information given by Zaki about his business transaction during the year of 2010,

there are five accounting concepts that are applicable in Zaki’s business. Most importantly is

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duality concept. This concept is explaining the basic foundation of accounting records. It is

assume that all transaction occur in a year has a dual effect. Beside that, there are two aspect

of accounting which one represented by asset of the business and the other by claim against

them. The concept states that these two aspects are always equal to each other. Simply saying,

each transaction must have an effect in both debit and credit side. This concept is totally against

the concept of single entry which it just record only one entry on each transaction. Thus, single

entry may unreliable for preparing financial statement.

2) Historical Cost Concept

Historical concept is the concept where each business should assume the cost of each asset is

going to be valued on the historical cost (the cost incurred during the asset purchased) not on

the market value and this is the basis for valuation of the assets . It is important to ensure that

the cost is remain constant as before and do not vary. If the business taking market value for his

asset, then his cost of asset may be vary from day to day due to the economic condition.

3) Materiality Concept

Each business is assuming to record all transaction from purchasing goods, acquiring assets or

capital and others into specific account. However, all businesses are advised to differentiate

between material and non-material. Materiality concept brings meaning the reporting of

significant accounting information is known as the application of the materiality concept, the

distinction between significant and insignificant information depends on the size of the

enterprise. The prepare of the financial statement needs to make certain judgement in

determining the significant of the information to be reported. These include the nature of the

information, amount of an item and effect on the result which will be reported. While the small

amount items should not be recorded. The example is stationary that amount RM 0.20 is not

affected the whole accounting.

4) Monetary terms concept

In monetary terms, it is clearly shown that all business transaction should be valued based on

Ringgit Malaysia (RM). It is contradicted to barter system that is likely to be practiced in the past

which nowdays most agree to the monetary value of the transaction. Basically, this concept is

applicable to each business either small or large business. Since technology has improved and

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a lot of new innovative idea has been created, people more trusted in value of money rather

than in terms of exchange goods.

5) Periodicity Concept

Periodicity concept is applicable to Zaki business as well as other businesses. It

is the concept which justifies the profit on those transactions at a specific period. The life

of a business is divided into specified periods of time for the purpose of preparing

financial statement. With the assumption that the business will continue to operate

indefinite period of time, it is not possible to wait until the end of the life of the entity to

measure its performance. Therefore, in measuring our business performance, the

business owner has to decide on the accounting period that might be use in preparing

the financial reports. The period may be in monthly, a half-yearly, a full year, or any other

length if time depending on the volume and nature of the business. Therefore, Zaki is

applying one whole year for his accounting period in order to calculate the profit that

manage to acquired.

Depreciation method

In the Statement of Comprehensive Income, cost of fixed asset must be charged and

listed down under expenses in order to determine the pattern of economic use of the asset.

Currently, Zaki is using straight line method of depreciation policy which charged 10%

per annum on cost, yearly basis on both types of his non-current assets; Motor Vehicle and

Office Equipment. Out of other methods of depreciation, straight line method is the simplest and

most commonly being used by calculating the depreciation based on acquisition price of an

asset throughout its useful life. Basically, this type of method will charge the same amount of

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depreciation value every year until the value shown for the asset has reduced from the original

cost to the salvage value.

However, Zaki is advised to use another method which may give more advantages to him.

Thus, the method suggested is reducing balance method or also known as declining balance

method. Basically, reducing balance method charges its asset’s depreciation at a higher rate in

the earlier years of an asset.

Why reducing balance method is being chosen rather than any other methods?

I. It is easy to understand and simple to implement.

II. Reducing balance method equalizes the yearly burden on profit and loss account in

respect of both depreciation and repairs. The amount of depreciation goes on

decreasing while the expenses on repairs goes on increasing, so that the total charge

against revenue over different years remains more or less the same.

III. It is acceptable for income tax purposes.

IV. Reducing balance method matches the cost and revenue of the business.

The differences between straight-line method and reducing balance method:

ACCOUNTS RECEIVABLE a/cParticulars Amount Particulars Amount

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Straight Line Method Reducing Balance Method

The method calculates the depreciation

for an asset in a specific period time.

The method calculates the depreciation for

provisional rate of an asset.

Depreciation is charged on fixed asset

with fixed rate.

Depreciation is charged on the amount of

fixed asset after deducting previous year

depreciation.

The amount of the depreciation will

equal in the first year or end of the

year.

Depreciation expense under reducing

balance method progressively declines

over the asset's useful life.

It has a salvage value as well as the

asset’s useful life.

It has no salvage value and useful life.

2012 RM 2012 RMCredit Sales 30,000 Return Inward 4,000

Total Receipts 20,000Balance c/d 6,000

30,000 30,000

2013 Balance b/d 6,000

ACCOUNTS PAYABLE a/cParticulars Amount Particulars Amount

2012 RM 2012 RMReturn Outward 6,000 Credit Purchases 48,000Discount Received 3,000Total Payment 38,000Balance c/d 1,000

48,000 48,000

2013 Balance b/d 1,000

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CASH a/c

Particulars Amount Particulars Amount

2012 RM 2012 RM

Balance b/d 2,000 Total Payment 20,000

Total Receipt 120,000 Balance c/d 120,000

122,000 122,000

2013 Balance b/d 120,000

BANK a/c

Particulars Amount Particulars Amount

2012 RM 2012 RM

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Balance b/d 8,000 Total Payments 123,000

Total Receipts 20,000

Loan 50,000

Balance c/d 45,000

123,000 123,000

2013 Balance b/d 45,000

ZAKISTATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012

RM RM RMSales 150,000Less return inward 4,000Net Sales 146,000Less: Cost of Goods SoldPurchases 80,000Less return outward 60,000Cost of Available Goods for Sale 74,000Less Closing inventory 20,000Cost of goods sales 54,000GROSS PROFIT 92,000Add: RevenueDiscount received 3,000Total Income 95,000Less: Operating ExpensesSalary 38,500Utilities 280Rental 12,000Repair of Motor Vehicles 1,000

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Depreciation : Office Equipment 1,400 : Motor Vehicles 3,600

Interest on Loan 1,667 58,447

NET PROFIT 36,553

ZAKISTATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012

COST ACC. DEP NBVRM RM RM

NON-CURRENT ASSETMotor Vehicle 36,000 3,600 32,400Office Equipment 14,000 1,400 12,600

45,000CURRENT ASSETClosing inventory 20,000Accounts Receivable 6,000Cash 120,000Prepaid Rent 3,000 149,000

194,000

FINANCED BY:OWNER;S EQUITYOpening Capital 60,000Add: Net Profit 36,553

96,553Less: Drawings 2,800Closing Inventory 93,753

NON-CURRENT

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LIABILITYLoan 50,000

CURRENT LIABILITYAccounts Payable 1,000Accrued Salary 2,500Accrued Utilities 80Accrued Interest on Loan 1,667Bank Overdraft 45,000 50,247

194,000

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