Ordinarily, businesses maintain their books adhering to the double-entry system of bookkeeping. But small-scale enterprises commonly don’t use an organized system of bookkeeping and rather follow the Single-Entry Method. Class 11 Accountancy syllabus familiarizes students with the single entry method of bookkeeping to impart them with the nuances of accounting in a small-scale business. To help you understand the same, this blog brings you the study notes and chapter summary for chapter 11 accounts from incomplete records.
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Accounts Under Single Entry
The chapter starts with a mention of a list of accounts that are or are not maintained under the single entry system. These are:
- Cash Book
- Personal Accounts
- Real Accounts, as needed
- Nominal Accounts are not prepared in this method
Benefits of Using the Single Entry System of Accounting
Single entry system of accounting comes with its own set of perks and benefits. As per the chapter on Accounts from Incomplete records, here are some advantages of using this system of accounting.
- Simple to Follow: Small scale traders and businessmen use this system. They cannot afford to employ dedicated staff for accounting or set up a sophisticated accounting system. This system is easy to follow. It does not require extensive technical knowledge of bookkeeping and accountancy
- Inexpensive: This system of accounting does not require a dedicated team. It can be done by one employee who possesses basic accounting skills. Therefore, there is minimal labour cost involved in this system. Additionally, it does not require expensive IT infrastructure or customized software. Thus, there are minimal setup and installation charges
- Flexibility: This system can be customized according to the needs of the business and convenience of the trader
- Apt for small scale enterprises and concerns: This system is widely used by small firms who do not have large turnover and large volumes of daily transactions. It is useful to track daily cash transactions and a small number of assets and liabilities
Limitations of Single Entry System of Accounting
However important the system of a single entry is, it has some limitations due to which it is not feasible to use this system in every possible situation. As per the class 11 chapter on Accounts from Incomplete records chapter, mentioned below are the disadvantages of this system:
- Arithmetical Accuracy: Real and nominal accounts are not maintained. Therefore, accuracy is compromised in this system since it is not possible to prepare a trial balance and check the balances
- Accurate Gain or Loss Cannot be Ascertained: All accounts are not prepared in this system. Thus, the actual amount of profit or loss cannot be ascertained since nominal accounts are necessary for that purpose
- A True and Fair View of the Financial Statements Cannot be Guaranteed: Not all real accounts are prepared under this system of Accounting. Therefore, it is not possible to prepare a balance sheet to judge the true and fair view and the financial performance of the entity
- Not Useful in Income Tax and other Statutory Assessments: This system is not reliable when it comes to ascertaining the actual amount of profit or loss. Therefore, it is not accepted by tax authorities in assessments and proceedings
- Not Completely Reliable: This method lacks credibility since accounting principles and assumptions are not followed. Therefore, it is not completely reliable.
Accounts From Incomplete Records: Theoretical Questions
Now that you are aware of the important theoretical pointers of the chapter accounts from incomplete records, let us go through some important theory questions and answers:
How to ascertain profit and loss under the Single Entry System of Accounting?
Accounts from Incomplete Records, profit or loss can be ascertained by Statement of Affairs Method. It is also known as the Net Worth Method. The following steps are followed to find out profit or loss: –
- The first step is to calculate the opening capital amount with the help of the Statement of Affairs, if not given in the problem. It is the amount of capital at the beginning of the accounting period.
- Calculate the amount of closing capital at the end of the accounting period by preparing the Statement of Affairs.
- Calculate the amount of profit or loss in the following manner: –
|Particulars||Amount (INR)||Amount (INR)|
|Add: – Drawings during the year||XXX|
|Less: – Capital introduced during the year||XXX|
|Adjusted capital at the end of the period||XXX|
|Less: – Opening Capital||(XXX)|
|Profit / Loss||XXX|
What is a Statement of Affairs?
- Statement of Affairs is similar to a Balance Sheet.
- It is a statement showing balances of assets, including cash and bank balances on the assets side and liabilities on the other side.
- The difference between the assets and liabilities is the amount of capital.
- The equation for the same is Capital = Total Assets-Total Liabilities.
How is the Statement of Affairs prepared?
The Statement is prepared in the following manner: –
Statements of Affairs
As At _____
|Liabilities||Amount (INR)||Assets||Amount (INR)|
|Capital (Balancing Amount)||XXXX||Stock||XXXX|
|Bills Payable||XXXX||Cash in Hand||XXXX|
|Outstanding Expenses||XXXX||Cash at Bank||XXXX|
|Income Received in Advance||XXXX||Prepaid Expenses||XXXX|
|Bank Overdraft||XXXX||Bills Receivable||XXXX|
|Total Liabilities||XXXX||Total Assets||XXXX|
Accounts from Incomplete Records: Practical Questions
Here are some practical question based on the topic ‘Accounts from Incomplete Records’:
P maintains her books on the Single Entry. She commenced her business in April 2013 with a capital of Rs. 80,000. On March 31st, 2014, the following data were extracted.
- Amount due to raw materials suppliers – Rs. 17,500
- The stock of raw materials and finished goods – Rs. 2,000, and Rs. 2,500 respectively.
- Fixed assets – Rs. 34,000
- Amount due from customers – Rs. 42,000
- The amount is withdrawn for personal expenses – Rs. 2,500/month.
- Capital introduced – Rs. 7000
- Balance at bank and cash Rs. 21,000, and Rs. 1,800 respectively.
- Outstanding expenses – Rs. 2,250
Calculate profit or loss using the Net Worth method.
Statement of Affairs
As at 31st March 2014
|Liabilities||Amount (INR)||Assets||Amount (INR)|
|Capital (Bal. Figure)||83,550||Fixed Assets||34,000|
Statement of Profit & Loss
for the year ended 31st March 2014
|Capital at the end of the accounting period||83,550|
|Add: – Drawings||30,000|
|Less: – Capital introduced||(7,000)|
|Less: – Capital (Brought Forward Balance / Opening Balance)||(80,000)|
|=Profit / (Loss)||26,550|
Thus, we hope that through this blog about accounts from incomplete records, you are all clear about this chapter. To know more about trending career options and courses, get in touch with our Leverage Edu experts and we will help you explore the best options as per your choices and career goals. Hurry up! Book an e-meeting.