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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