Statement of Affairs Method
- Single entry systemis a system of book keeping in which accounting records are not kept according to double entry principle of book keeping. It is also called Accounts from Incomplete Records.
- This system differs from firm to firm, as it is a mere adjustment of double entry system according to requirement. Under this system, only personal accounts are maintained.
- Limitations of single entry system are that it is incomplete and unscientific method.
- The profit or loss in this system of accounting is ascertained with the help of Statement of Affairs Method.
- To ascertain profit, according to the Statement of affairs method, it is necessary to prepare a statement of affairs at the end of the year and also at the beginning of the year, if not already prepared.
- The difference between the opening capital and closing capital is the profit earned during the year.
- In case of single entry system, profit is also computed by adding drawings during the year to capital at the end and deducting additional capital and capital at the end from it.
- Under double entry system, both aspects of a transaction are recorded. While under single entry system both aspects of transaction are not recorded. In fact, for some transactions two aspects, for some other one aspect and yet for others no aspect at all are recorded.
- Indouble entry system, trial balance is prepared and thus, the arithmetical accuracy of the books of account is verified. Under single entry system, trial balance cannot be prepared due to the incomplete system of accounting. Therefore, arithmetical accuracy of the accounting cannot be verified.
- Double entry system is considered as authentic by the court. The court does not consider Single entry system as authentic.
- Both statement of affairs and Balance Sheet show the assets and liabilities of a business entity on a particular date. However, there are some fundamental differences between the two.
- The objective of preparing statement of affairs is to estimate the balance in capital account on a particular date. The objective of preparing Balance Sheet is to show the true financial position of an entity on a particular date.
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Can a Trial Balance not be prepared under Single Entry System?Marks:1
No, under Single entry System, a Trial Balance cannot be prepared due to incomplete system of accounting.
Which types of accounts are maintained under Single Entry System?Marks:1
Normally, personal accounts & cash book are maintained under Single Entry System.
A limited company cannot maintain its accounts under Single Entry System. Why?Marks:1
Limited companies, because of legal provisions, cannot maintain accounts under Single Entry System.
Give some examples of the adjustments made while calculating profit during the year?Marks:1
Examples of such adjustments made to profit during the year are: Depreciation, Interest on Loans, Provision for Doubtful Debts, Outstanding Expenses, Interest on Capital, etc.
Single Entry System is suitable for which type of business?Marks:1
This system is suitable for small firms or business, which have mostly cash transactions.