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Wednesday, April 27, 2011

Single Entry System

As we have already mentioned the concept of double entry system which includes two aspects i.e. debit and credit. But under single entry system, only records of cash and of personal account are maintained.It records only one aspect of every transaction, therefore, it is often called as an incomplete system of recording transactions. In single entry system, accounts relating debtors, creditor and cash are prepared. However, it ignores all impersonal accounts like salaries, wages, sale, purchases etc. In other words, it maintains a cash book and personal account but does not record nominal and real accounts. For example, if goods are purchased from a supplier on credit, his personal account is credited but no entry is made on the debit side of the goods account.

Features of single entry system
  1. It is maintains only accounts relating to person but ignores the real and nominal accounts.
  2. It also prepares the cash book but both personal or business cash transactions are recorded in same book.
  3. It is suitable to small traders having lesser number of transactions.
  4. It lacks the specific rules of maintaining books of accounts, as a result there is no uniformity in accounts of different firms.
  5. Trial balance cannot be prepared under this system.

Preparation of Balance Sheet

balance sheet of a non-trading organization is prepared in the same manner as the balance sheet of a business concern by showing assets on the right hand side and liabilities on the left hand side. It is prepared on the basis of last year's balance sheet, receipts and payment account, stock register kept for assets and the income and expenditure account. The following points should be noted while preparing balance sheet.
  • Capital Fund: The capital fund represent the excess amount of assets over the liabilities. It is determined by preparing opening balance sheet at the beginning of the year.
  • Surplus or Deficit: The surplus amount taken from income and expenditure account is added to the capital fund while preparing balance sheet at the end of yea. On the other hand, the amount of deficit is deducted from capital fund.
  • Cash and Bank Balance: The closing balances of cash and bank are shown on the assets side of balance sheet. However, opening balances are ignored.
  • Assets: Assets of opening balance sheet or last year are shown on the assets side of closing balance sheet. If there is any addition in current yea, it must be added and in case of sale, it is deducted. The depreciation made during the year is also adjusted in fixed assets.
  • New Assets: In case of purchase of any new assets, it is required to show on the assets side of balance sheet.
  • Liabilities: Outstanding expenses, advance income etc. are shown on the liability side of balance sheet. Previous year's liability should be adjusted for payments made.
  • Special Receipts: Special receipts are shown in balance sheet after making necessary adjustments.

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