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An analysis of single entry system Essay

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Table of Contentss

1.Introduction

2.Single Entry System

2.1.Features of Single Entry System

2.2.Types of Single Entry System

2.3.Reasons for keeping individual entry system

2.4.Calculation of losing figures

2.5.Advantages and disadvantages of the Single Entry System

2.6.Suggestions to forestall loss of informations

3.Conclusion

4.References

1. Introduction

This assignment explores the Single Entry or Incomplete system of keeping records and its application. After a brief lineation of the individual entry system and its salient characteristics, the assignment so explores the assorted types of individual entry system and the cardinal differences between the types. In add-on, a elaborate scrutiny of why individual entry systems are used and the method to calculate the losing figures in order to get at the profit/loss of the company is besides undertaken which is so applied to the instance survey. The assignment concludes with the assorted advantages and disadvantages of utilizing the individual entry system and suggestions to forestall the loss of accounting informations due to eventualities.

2. Single Entry System

As stated by Kohler ( 1970 ) “Single Entry System is a system of book maintaining in which as a regulation merely records of hard currency and personal histories are maintained, it is ever uncomplete dual entry changing with circumstances.”

In the individual entry system of book maintaining, all the minutess are maintained in the books of histories and it is considered every bit uncomplete as the dual consequence as recorded in the dual entry system is non maintained in this system of book maintaining.

Since the individual entry system fails to keep a record of existent and nominal histories and merely takes into history merely personal history, it is regarded as inaccurate, unscientific, unsystematic and faulty.

2.1. Features of Single Entry System

Some of the characteristics of uncomplete records are as follows –

  1. Incompleteness– Since the minutess are recorded without taken the double facet of accounting into consideration, it is uncomplete and unscientific.
  2. Personal Histories– The individual entry system merely takes into history the personal history while fixing the records. By and large, the hard currency book and debtors/creditors account are maintained in this system.
  3. Restrictions in use– Corporations are non allowed to utilize this system of accounting. It can merely be used by smaller entities such as exclusive bargainers and partnerships.
  4. No separation in hard currency and recognition minutess– the books of histories under this method, by and large include both hard currency and recognition minutess.
  5. Omission of minutess– Not all minutess are recorded consistently in the books of histories and frequently some minutess are omitted
  6. Estimate net income– Under this method, due to incomplete records, the true net income is non represented.

2.2. Types of Single Entry System

There are three types under this method

  1. Pure – Merely personal histories ( debtors/creditors ) are recorded
  2. Simple – Both personal history ( debtors/creditors ) and hard currency book are maintained
  3. Quasi – Both personal history and hard currency book are maintained along with some other books like purchase and gross revenues books, returns book etc.

2.3. Reasons for keeping individual entry system

There could be a assortment of grounds why a house could follow the individual entry system. For case, a exclusive owner may non hold the cognition and the accomplishments to keep his books harmonizing to the dual entry system of clerking and will happen the individual entry system to be more convenient and simple. In add-on, smaller companies may non hold the undertaking force to give clip and attempt for keeping unvarying, seasonably and systematic books as per the dual entry system. the Another ground could be that the owner chooses to follow the individual entry system due to assorted loop holes it provides to minimise revenue enhancement on the concern. Assorted eventualities such as loss due to theft or from natural catastrophes could besides take to incomplete records.

2.4. Calculation of losing figures

It is indispensable for an entity to analyse its net income or loss and the position of its assets and liabilities during a period in order to measure its public presentation and efficiency. Since the books have non been maintained utilizing the dual entry system, in order to fix the income statement and balance sheet, assorted losing figures have to be calculated in the uncomplete records method. For case, the owner may non enter his drawings from the concern, nevertheless there might be certain other figures which can be used to cipher the drawings.

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After computation of the missing figures, the entity can fix the statement of personal businesss at the start and terminal of the accounting period to get at the net income and loss, and so cipher alterations in the owner’s equity. Once these figures have been calculated, the net income and loss history and the balance sheet can be prepared.

The stairss required to cipher the losing are as follows.

2.4.1. Statement of Affairs

The assets and liabilities of the company both at the start and the terminal of the accounting period are analyzed to cipher alterations in the owner’s equity. In this statement, similar to the balance sheet, the assets are shown in one column and the liabilities in another column. Then a statement is prepared to get at the net income for the accounting period.

The undermentioned accounting equation is used:

Measure 1– Computation of hard currency gross revenues

The assorted hard currency minutess i.e. hard currency escape and influxs are recorded in the hard currency history. The equilibrating figure in the history will be hard currency gross revenues, opening balance, drawings or shuting balance depending on the missing figure.

Cash Book ( Cash )

Dr. Cr.

OMR

OMR

To equilibrate b/f

1,000

By bank

10,000

To gross revenues ( equilibrating figure )

24,000

By wages

4,000

By creditors

2,000

By drawings

8,000

By balance c/d

1,000

25,000

25,000

Hence, hard currency gross revenues areOMR 24,000.

Measure 2– Calculation of Opening Bank Balance

The influxs and escapes from the bank are recorded in the Bank history. The reconciliation figure will be the bank balance in the beginning or stop or loan depending upon the missing figure.

Cash Book ( Bank )

Dr. Cr.

OMR

OMR

To hard currency

10,000

By balance b/f ( bal. figure )

5,000

To debitors

75,000

By creditors

70,000

To Bank Loan

10,000

By concern disbursals

12,000

By balance c/d

8,000

95,000

95,000

Hence the opening bank balance isOMR 5,000.Since it is on the recognition side, it can be understood that it is an overdraft.

Measure 3– Preparation of Total Creditors histories

The creditors account can be prepared by entering the money paid to the creditors and gap and shutting balance. In this instance it can be used to happen the recognition purchases which is the equilibrating figure.

Entire Creditors Account

Dr. Cr.

OMR

OMR

To bank

70,000

By balance b/f

4,000

To hard currency

2,000

By Cr. purchases ( bal. figure )

77,000

To equilibrate c/f

9,000

81,000

81,000

Hence recognition purchases areOMR 77,000.

Measure 4– Preparation of Entire Debtors histories

The debitors account can be prepared by entering the money owed by the debitors and gap and shutting balance. In this instance it can be used to happen the recognition gross revenues which is the equilibrating figure.

Entire Debtors Account

Dr. Cr.

OMR

OMR

To equilibrate b/f

10,000

By bank

75,000

To recognition gross revenues ( bal. figure )

100,000

By balance c/f

35,000

110,000

110,000

Hence recognition gross revenues areOMR 100,000.

Measure 5Preparation of Statement of Affairs to calculate opening capital

The statement of personal businesss can be prepared once the losing figures have been computed with the liabilities in one column and assets in another column. It can be used to calculate the opening capital of the entity.

Nasser

Statement of Affairs as on 1stJanuary 2014

Liabilitiess

OMR

Assetss

31.12.2014

Assorted Creditors

4,000

Cash in Hand

1,000

Bank Overdraft ( step 2 )

5,000

Assorted Debtors

10,000

Capital ( equilibrating figure )

30,000

Stock of goods

28,000

39,000

39,000

Measure 6– Preparation of Final history

Nasser Profit and Loss history for the twelvemonth stoping 31stDecember, 2014

OMR

OMR

To Opening stock

28,000

By gross revenues

Cash gross revenues ( Step 1 ) 25,000

Recognition gross revenues ( Step 4 ) 100,000

125,000

To buy ( step 3 )

77,000

Closing Stock of goods

11,250

To Gross net income

33 1/3 % on cost = ? on gross revenues

= ? of 125,000

31,250

136,250

136,250

To Wages

4,000

By Gross net income b/f

31,250

To Business Expenses

12,000

To involvement on Bank Loan

1,000

To net net income

14,250

31,250

31,250

Hence, Nasser’s Gross net income for the ear stoping 31stDecember, 2014 is 31,250 and his net net income is 14,250

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2.5. Advantages and disadvantages of the Single Entry System

Advantages

One of the chief advantages with utilizing the individual entry system is the comparative easiness with which the histories can be prepared. A exclusive owner or spouse without progress accounting accomplishments can go on to keep path of their histories utilizing this method. This besides aids in doing this system less expensive as the entity need non engage professional accounting staff to pull off the histories of the company and it besides makes the calculation of net income and loss comparatively simple and consecutive forward. Hence, the individual entry system would be a suited system for keeping the histories of little houses.

Disadvantages

One of the chief drawbacks of the system is that it is non accurate, systematic or scientific. The individual entry system does non hold a fixed set of regulations that need to be followed while fixing the histories as compared to the dual entry system. Hence, the chance of deficiency of uniformity, fraud, embezzlement of assets and inaccuracy are really high. In add-on, due to the deficiency of the accounting via the double system, this system of accounting is regarded as uncomplete and makes it hard to determine good will and the fiscal place of the company. The individual entry system merely maintains personal histories and does non maintain a record of existent and personal histories, thereby impacting the contemplation of the net income and loss every bit good as the fiscal place of the company. In add-on, due to the rawness of the system, it can non be used for revenue enhancement purposed. This will besides do it hard for the direction to be after schemes and pull off the concern and lead to substandard disposal as the public presentation of the company can non be compared over the old ages. Furthermore, under this system, if there is a larceny or loss, it will comparatively harder to observe. Hence, the individual entry system is more appropriate for little houses and non suited for larger corporations that need to keep more accurate and clear histories.

2.6. Suggestions to forestall loss of informations

One manner in which an entity can protect against the loss of informations is by utilizing accounting information systems ( AIS ) . As stated by Amy Fontinelle ( 2014 ) The AIS “is a construction that a concern uses to roll up, shop, manage, procedure, retrieve and describe its fiscal informations so that it can be used by comptrollers, advisers, concern analysts, directors, main fiscal officers ( CFOs ) , hearers and regulative and revenue enhancement agencies” . The AIS therefore maintains security of informations. These systems besides need on-line protection in the signifier of anti-virus, firewalls etc. This information besides needs to be backed up on a timely and fixed footing so that it can be retrieved if lost.

Additionally, a house should hold internal controls to forestall embezzlement, fraud from larceny etc. These internal controls will see that the fiscal statements are prepared clearly and it is complete. They besides province the accounting regulations to be followed by the company including when the backups should be done, who should hold entree to the QuickBooks. The dual entry system besides helps to protect the house against fraud and embezzlement as the accounting informations can be compared against the balances and journal entries thereby doing it hard to pull strings it.

The director of the company can besides hold an outside comptroller like a CPA reappraisal the statements and suggest better patterns and larn how to keep the histories to minimise fraud and embezzlement.

3. Decision

Therefore, it can be seen that the Singly Entry system of accounting is more suited for smaller organisations that do non hold the accomplishments and experience to utilize the dual entry system. Although it is more convenient, less expensive and simple, the disadvantages of the Single Entry system far outweigh its advantages. This has been explained in item in the assignment along with the stairss required to cipher the net income and loss.

Using this, a measure by measure computation of Nasser’s Opening Capital ( OMR 30,000 ) , Gross Profit ( OMR 31,250 ) and Net Net income ( OMR 14,250 ) was done. Further to this the chances of utilizing the individual entry system along with suggestions to forestall the loss of accounting informations has besides been explained in item.

4. Mentions

  • Kohler, E. L. ( 1970 ) . A dictionary for Accountants. Englewood Cliffs: Prentice-Hall.
  • Hanif et Al. ( 2003 ) . Fiscal Accounting. India: Tata – McGraw Hill Pubicaton. p21-23.
  • Jayapandian, S. ( 2004 ) . Fiscal Accouning from Zero. India: Excel Books. p24-33.
  • Baker, J ( 2008 ) . twentieth Century Bookkeeping and Accounting. Soviet union: Ripol Classic Publishing House. p289-291.
  • Maheshwari, S ( 2009 ) . Fundamentalss of Accounting for Cpt. India: Vikas Publishing House Pvt Ltd. p45-48.

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An analysis of single entry system Essay
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Table of Contentss

1.Introduction

2.Single Entry System

2.1.Features of Single Entry System

2.2.Types of Single Entry System

2.3.Reasons for keeping individual entry system

2018-10-20 04:15:50
An analysis of single entry system Essay
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