Accounts from Incomplete Records H.S. 1ST YEAR ACCOUNTANCY NOTES AHSEC ASSAM Higher Secondary UNIT -8

 

Unit – 8

Accounts from Incomplete Records

 

Q1. What is an account from incomplete records or single entry system?

Ans. Single entry is a method or a variety of methods, employed for the recording of transactions, which ignores the two fold aspect and consequently fails to provide the businessman with the information necessary for him to be able to ascertain the position. Single entry method of recording the transactions is an incomplete, inaccurate, unscientific and unsystematic style of maintaining the accounts.


Q2. What are the features of accounts from incomplete records or single entry system?

Ans. Following are the features of accounts from incomplete records:

a. Maintenance of personal accounts: Under this system personal accounts are maintained, while real and nominal accounts are avoided.

b. Maintenance of cash book: A cash book is maintained, which usually mixes up both the personal transactions and business transactions.

c. Dependence on original vouchers: In order to collect the necessary information one has to depend upon original vouchers.

d. No uniformity: The account from incomplete records is a mixture of single entry, double entry and no entry. Recording is done according to the convenience and information needs of the business.

e. Suitability: The system is suitable in case of small, proprietary or partnership concerns. Limited companies cannot adopt this system on account of legal requirements.

Q3. What are the uses of accounts from incomplete records?

Ans. Following are the uses of accounts from incomplete records:

a. Simplicity: Due to simplicity and lack of rigidity any one can maintain it without any adequate knowledge of accounting.

b. Limited number of accounts: A limited number of accounts are to be opened under this system since the transactions relating to cash book and personal accounts are only maintained.

c. Inexpensive: This is economical system for such persons whose business is on a small scale and the numbers of transactions are limited.

d. Tax evasion: Sometimes this system is purposely adopted to deceive the taxation authorities.

e. Accounting for an event: In the case of an accounting for an event i.e., social function, academic event, festival etc., this system is very useful.

 

Q4. What are the limitations of accounts from incomplete records?

Ans. Following are the limitations of accounts from incomplete records:

a. Difficulty in checking arithmetical accuracy: Arithmetical accuracy of the books of accounts is not possible since the trial balance can’t be prepared under this system.

b. Difficult to ascertain true profits: It is not possible to ascertain the correct amount of profit or loss of the firm since the nominal accounts are missing under this system.

c. Difficult to judge the financial position: In the absence of true figure of profits and correct information about assets and liabilities of the business, the balance sheet cannot be drawn up. Therefore the real financial position cannot be known at the end of the accounting period.

d. Lack of statistical data: As the complete record of all transaction is not maintained hence useful statistical information about the business cannot be obtained.

e. Difficult to rectify errors: The errors cannot be easily located and rectified under this system since the trial balance cannot be prepared.


Q5. What are the differences between Double Entry System and Accounts from Incomplete Records?

Ans.  Following are the differences between Double Entry System and Accounts from Incomplete Records:

Double Entry System

Accounts from Incomplete Records

a. Double Entry System provides complete financial information as both aspects of a transaction are recorded.

b. Single entry system is an incomplete method. In some cases both and in other cases only one or no aspect is recorded.

b. All types of accounts personal, real and nominal are prepared.

b. Only personal accounts and cash book is maintained.

c. This system is suitable for all types of business whether big or small.

c. This system may be used only in small business concern.

d. Exact financial position can be ascertained from the balance sheet.

d. In the absence of reliable balance sheet, financial position cannot be found easily.

e. True and reliable profit or loss can be ascertained in double entry system.

e. The knowledge of true profit is difficult and unreliable too, in single entry system.

 

Q6. What are the differences between Balance Sheet and Statement of Affairs?

Ans.  Following are the differences between Balance Sheet and Statement of Affairs:

Balance Sheet

Statement of Affairs

a. It is prepared on the basis of books kept on double entry basis.

a. It is prepared on the basis of books kept on single entry basis.

b. It is based on the completely true and reliable data.

b. It is based on the balances of accounts, valuation, calculation, information and enquiry.

c. Its purpose is to see the financial position.

c. Its purpose is to find out the capital.

d. Trial balance is prepared before preparing it.

d. Trial balance is not prepared before finding out profit or loss.

e. Balance sheet can be presented in the court of law as an evidence in case of disputes.

e. Statement of affairs is not accepted as an evidence in the court of laws.

 

Q7. How the profit is ascertained under statement of affairs method?

Ans. Single entry system is an incomplete, unscientific and unsystematic way of maintaining the accounts; it is not possible to check the arithmetical accuracy of the accounts. It is a strange system in which every person maintains the records in his own way.

The following methods are used to ascertain the profit or loss and to know the financial position:

i. Statement of affairs method/Net worth method/Capital comparison method

ii. Conversion method/Final accounts method.

Statement of affairs method: In Statement of affairs method the profit or loss made by the business is computed by comparing the capital or net worth of the business on two different dates.

Steps for ascertaining profit or loss under Statement of affairs method are as follows:

a. Ascertain opening capital by preparing a statement of affairs at the beginning of the accounting period.

b. Ascertain closing capital by preparing a statement of affairs at the end of the accounting period.

c. Add the amount of drawings and interest on drawings in the closing capital.

d. Deduct the amount of additional capital introduced and interest on capital from the closing capital.

e. Ascertain the profit or loss by deducting opening capital from the adjusted closing capital.


Q8. What are the various kinds of single entry system?

Ans: Following are the types/kinds of single entry system:

a. Pure single entry system: Under this type of single entry, the dual aspect of each transaction is ignored. Only personal account of debtors and creditors are kept but no record is kept for Real or Nominal Account.

b. Simple single entry system: Under this system,

(i) Personal Account

(ii) Cash book are kept.

c. Quasi single entry system: Under this system,

(i) Personal Account,

(ii) Cash book

(iii) Some other subsidiary books are kept.

 

Q9. “Though single entry system is full of defects, yet it is still seen in practice”. Explain in brief.

Ans: Single entry system is suffered from various limitations but it is still in use because of the following merits:

a. Simplicity: Due to simplicity and lack of rigidity any one can maintain it without any adequate knowledge of accounting.

b. Limited number of accounts: A limited number of accounts are to be opened under this system since the transactions relating to cash book and personal accounts are only maintained.

c. Inexpensive: This is economical system for such persons whose business is on a small scale and the numbers of transactions are limited.

 

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