Single Entry System
Incomplete records
A single entry system records only some transactions, often cash and personal accounts, and ignores the dual aspect. It is incomplete, unscientific and unsuitable for large businesses. Profit can be found by the statement of affairs method or the conversion method. Under the statement of affairs method, capital is the difference between assets and liabilities. Profit = Closing capital + Drawings − Additional capital − Opening capital. The conversion method reconstructs accounts using cash book, debtors, creditors and other information.
Worked example
Opening capital is ₹1,00,000; closing capital is ₹1,50,000; drawings are ₹20,000; additional capital introduced is ₹10,000. Profit = ₹1,50,000 + ₹20,000 − ₹10,000 − ₹1,00,000 = ₹60,000. Reasoning: closing capital is increased by drawings because drawings were taken out, and reduced by new capital because new capital is not profit. The balancing figure is profit.
Traps that cost marks
Do not treat the excess of closing assets over liabilities as profit; it is closing capital. Add drawings back and deduct additional capital. Do not include cash sales in debtors. If opening capital is not given, prepare an opening statement of affairs. Distinguish between capital and revenue receipts. A statement of affairs is not a proper Balance Sheet because it may omit nominal accounts and use estimates.