Question

How is profit calculated in the Single Entry System?

• A. By preparing profit and loss account
• B. By comparing opening and closing capital (Statement of Affairs Method)
• C. By detailed ledger postings
• D. By Bank Reconciliation Statement

Answer 1

Answer:

B. By comparing opening and closing capital (Statement of Affairs Method)

SYSTEM OF BOOK KEEPING

THE SINGLE ENTRY SYSTEM

• Is a system of Recording Transactions on the books of accounts

• Incomplete system

• Not based on double entry system.

• Only one aspect of transaction is recorded.

• It is very simple and it can be operated without any accounting knowledge.

• Only Cash Book and Personal Account are maintained.

• Does not maintain a full system of Accounting.

• Trial Balance cannot be prepared.

• Trading and P and L account cannot be prepared from single entry accounts.

• Followed by Small firms, sole traders, partnership firms, HUF etc.

• Not Followed by Joint Stock Companies.

• Unsystematic and incomplete of Accounting.

• The profit is calculated by comparing Capital in the beginning and at the end of the period

• Statement Of Affairs Methods is also known as Capital Comparison Method.

• Total Debtors Account is prepared to find the Credit sales.

• Creditors Account is Prepared to find out Credit In this system the Profit and Loss Account is prepared to find out using Statement of Affairs Method.(Conversion Method)

• The statement of Affairs Method is prepared to find out the Capital.

• Defect- unscientific method

• Ignored Nominal, Real Account