WEEK FIVE – SIX
SINGLE ENTRY AND INCOMPLETE RECORDS
Introduction
This topic is about how to prepare trading, profit and loss account under an incomplete record or single-entry accounting system.
Meaning
This is system of accounting of financial transactions that are recorded without conformity with the rule of double entry’.
The records so prepared based on a single entry or one-leg entry by any bookkeeper or record keeper is hence incomplete or inadequate for proper accounting system. In order to prepare a normal accounting report, an accountant has to use one of his or her mental experience and ingenuity to prepare the accounts or financial reports from the incomplete records.
Features of Single Entry/Incomplete Records
- Final accounts are prepared by comparing financial data of two or more years.
- Accounting information is grossly inadequate.
- Accounting records or books are not in existence or not well organized.
- Mostly, records are kept on loose sheet or only cash book is kept.
- There is no any accounting system in such an organization.
- Record keeping is flexible.
Areas Where Single-Entry Accounting Systems Are Used
Areas where single accounting systems are used are as follows:
- Schools
- Government parastatals and agencies
- Club association, unions (not-for-profit organization) and so on.
- Sole traders, or small-scale business
- Organizations that have no finance or accounting unit
- Business or companies that are victims of artificial or natural disasters.
- Business where records are kept on loose sheets.
Preparation of Statement of Affairs
A statement of affairs is the summary of a firms’ or a business’ assets, liabilities and owners stake at any given time.
It could be drawn at the beginning or at the end of every accounting year or period. The statement is drawn to ascertain any growth or increases in the components of the statements at any point in time. The information required to prepare this statement are: all fixed assets, total of debtors and creditors, owing and prepaid expenses, cash in hand and at bank and so on.
When two statements of affairs for different periods are compared, it will help to ascertain the followings:
The format for the statement of affairs is given in the following:
(a) Opening Statement of Affairs
| N | |
| Fixed assets Current assets Less: Liabilities | XXX XXXXXX (XXX)  XXX |
Opening capital = Total assets – Liabilities
(b) Closing Statement of Affairs
| N | |
| Fixed assets Current assets Less: Liabilities | XXX XXX XXX XXX  XXX |
Computation of profit Between the Two Profits
| N | N | |
| Closing capital | XXX | |
| ADD: Drawings | XX | |
| Less: Opening Capital | XX | |
| Additional Capital | XX | (XX) |
| Net Profit | XX/(XX) |
Profit or loss can as well be computed as follows:
(a) Opening capital + Profit – Drawings + Additional capital = New or closing capital
(b) Profit = New capital + Drawing – Opening Capital – Additional Capital
Illustration 1
Abraka Ventures statements of affairs components as at 1 January, 2016 are given below.
| N | |
| Creditors Bills payable Plants and equipment Stock Debtors Bills receivable Cash | 40,000 12,000 60,000 20,000 10,000 20,000 2,000 |
On 31 December, 2010, the following information was extracted from the business. Creditors N30,000, bill payables N16,000 equipments N50,000, stock N10,000 Debtors N20,000, Bills receivable N14,000, Cash N200 and drawings for the period were N16,000.
You are required to:
- Calculate the opening capital
- Show the closing capital and net profit
Illustration 2
Olaore Supermarket records all its financial transaction in a notebook. The following are extracts from the notebooks:
|
Stock Creditors Debtors Cash in hands Bank overdraft Fixtures and fittings Motor van | Notebooks |
| 31 December, 2008 | 31 December 2009 |
| N 33,000 30,000 40,000 500 50,000 15,000 20,000 | N 46,000 28,800 35,000 4,000 38,000 15,000 20,000 |
The drawings during the year amounted to N5,000. Depreciation on furniture and fittings to be 10%, while N2,000 to be written off motor van. N1,000 of the debtors are irrecoverable and a general provision of 5% should be made on the debtors balance.
You are required to:
- Ascertain the profit and loss for the year ended 31 December 2009.
- Prepare a statement of affairs as at that date.
PREPARATION OF FINAL ACCOUNTS FROM INCOMPLETE RECORDS:
Conversion of Single Entry to Double Entry
An organization that keeps single entry or incomplete records of accounting may decide to prepare its annual final accounts from the inadequate information. It is possible under this incomplete records situation to prepare such final accounts by merely converting the single entry records to double entry records given the available information. The following are the necessary books that need to be opened for such conversion:
- Cash book
- Sales ledger
- Purchases ledger
- Assets and liabilities account
- Nominal accounts
If such conversion is done properly, a trial balance could be drawn to test the arithmetical accuracy of the records. For the purpose of the conversion and the preparation of final accounts from this situation, the following procedure should be adopted.
Step 1: Prepare the opening statement of affairs purposely to ascertain opening capital.
Step 2: Prepare the cash book with the details. This must include both the cash and bank accounts as the case may be either separately or in a cash book.
Step 3: Prepare both debtors and creditors ledger control accounts to ascertain the total credit sales and total credit purchases.
Step 4: Prepare a schedule or summary for total sales and purchases by adding the total credit sales and purchases with the cash sales and cash purchases.
Step 5: Prepare control accounts for the nominal items that have outstanding or prepaids either at the beginning or at the end of the period in question.
Step 6: Prepare any other required working schedules.
Step 7: Prepare trading, profit and loss accounts from steps 1 – 6 above.
Step 8: Prepare the balance sheet.
Illustration 3
Arsenal ventures had the assets and liabilities as at 1 January 2008.
| N | |
| Delivery van | 120,000 |
| Machine | 180,000 |
| Debtors | 70,000 |
| Bank | 100,000 |
| Stocks | 25,000 |
| Creditors for expenses | 10,000 |
They do not keep proper records for their business transactions but the following were extracted from sketch books.
| N | |
| Opening cash balance | 100,000 |
| Receipts from debtors | 85,000 |
| Payments | |
| Materials | 52,000 |
| Repairs of van | 20,000 |
| Telephones | 2,500 |
| Creditors for expenses | 10,000 |
On 31, December 2008, debtors were owning N150,000 and closing stock was valued at N10,000
The following additional information was available:
| N | |
| Provision for depreciation Delivery van Machine Accrued telephone expenses Provision for doubtful debts |
10,000 20,000 4,000 3,000 |
You are required to prepare:
- Statement of affairs as at January 2008.
- Trading, profit and loss account for the year ended 31 December 2008 and the balance sheet as at that date.
Solution
Opening Statement of Affairs as at 1 January 2008.
| N | |
|
Delivery van Machine Debtors Stocks Bank Less: Liabilities |
120,000 180,000 70,000 25,000 100,000 495,000 (10,000) |
Bank Account
| Receipts | N | N |
| Opening cash balance Receipts from debtors Less: Payments Closing cash balance |
52,000 20,000 2,500 10,000 | 100,000 85,000 |
Debtors Ledger Control Account
| N | N | ||
| Balance b/f Credit sales a/c Balance b/f | 70,000 165,000 | Bank a/c Balance c/f | 85,000 150,000 235,000 |
Accrued Expenses Account
| N | N | ||
| Balance a/c Balance c/f | 10,000 4,000
| Balance b/f P & L Balance b/f | 10,000 4,000 14,000 4,000 |
Arsenal Ventures
Trading Profits and Loss Account for the Period Ended 31 December 2008
| N | N | |
| Sales Less: Cost of sales Opening stock Purchases Closing stock Gross Profit Net profit |
25,000 52,000 77,000 (10,000) | 165,000 |
Arsenal Ventures
Balance Sheet as at 31 December 2008
| Cost | Depreciation Net | NET Book Value | |
| N | N | N | |
| Delivery van Machine Current assest | 120,000 180,000 300,000 | (10,000) (20,000) (30,000) 10,000 | 110,000 160,000 270,000
|
| Less: Accrued expenses |  (4,000) |    253,500  523,500N 485,000 38,500  523,500 |
Illustration 4
Wayne Salako Enterprises could not keep proper book for their business transactions during the year 2004. The following were extracted from the books.
| N | |
| Purchases: Cash Credit Cash received from debtors Purchases of furniture Cash Sales Expenses Paid: Salaries Electricity Rent Insurance Rate Advertisement |
300,000 500,000 1,300,000 48,000 500,000 144,000 |
The following additional information was available:
(a)
| 01/01/2009 N | 31/12/2009 N | |
| Stock Outstanding electricity Rent owing Insurance Prepaid Debtors Creditors Rates In advance | 100,000 1,600 4,000 3,600 50,000 30,000 3,000 | 140,000 2,400 3,600 4,000 64,000 44,000 2,400 |
(b) Fixed assets on 1 January 2009 are as follows:
| N | |
| Furniture Motor vehicle Building Cash at bank on 1 January 2009 | 72,000 500,000 700,000 200,000 |
(c) Fixed asset should be depreciated as follows:
Furniture and building 5%
Motor vehicle 20%
You are required to prepare trading, profit and loss accounts for the year ended 31 December 2009.