CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM

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Advance Financial Accounting (FIN-611)

LESSON # 3

CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM

Accounting for Medium scale business entities

Businesses grow by the time and so the transactions also keep on becoming complex. In this

situation the system of knowing Net profit through the Statement of Profit or Loss does not

suffice the requirements of the management nor the government agencies put the level of

reliance on such statement any more.

Medium scale business entities have this much resources that they can afford a semi qualified

or a reasonably good qualified accountant to look after accounting issues of the entity. But such

accountants are kept under the supervision and guidance of the accounting consultants who are

qualified accountant. These consultants provide directions to the accountant to maintain certain

books of accounts and to extract summaries at the end of the accounting period. With the help

of these summaries the consultants (qualified accountants) prepare detailed Income Statement

and Balance Sheet for the medium scale entity.

Such Income Statement and Balance Sheet is exactly the same had there been a systematic

double entry accounting system prevailing in practice.

1.1

Accounting Records

Accountants of these entities are directed to maintain following set of information, which

although does not constitute a complete accounting system but can work:

Cash Book

i. Cash Account

ii. Bank Account

Debtors (Accounts Receivables) Ledger

Creditors (Accounts Payables) Ledger

Statement of Affairs (Opening)

Year-end adjustments

i. Closing stock

ii. Depreciation of fixed assets

iii. Provision for doubtful debts

iv. Accruals and prepayments

v. Disposal of Assets

1.2

Preparation of Financial Statements

Now let's see how Income Statement and Balance Sheet can be prepared with the help of a set

of incomplete records. For this we will analyze the contents of Income Statement and Balance

Sheet item by item in the following pages.

Name of the Organization

Income Statement

For the year ended December 31 20x7

Source of Information

Rs.

Sales

Cash Sales

Cash Book receipts side

Credit Sales

Debtors account Dr side

Cost of Goods Sold

Opening Stock

Statement of Affairs

Advance Financial Accounting (FIN-611)

Purchases

Cash Purchases

Cash Book payment side

Credit Purchases

Creditors account Cr side

Closing Stock

Year-end Adjustments

Gross Profit

Operating Expenses

Cash based expenses

Cash Book payment side

Adjusted with:

Accrued Expenses

S O A-opening/Year-end Adjustments

Prepaid Expenses

S O A-opening/Year-end Adjustments

Expenses against receivables

Bad Debts/Discounts

Debtors account Cr side

Provision for doubtful debts

S O A-opening/Year-end Adjustments

Expenses against fixed assets

Depreciation

Year-end Adjustments

Loss on disposal

S O A-opening/Cash Book receipts

Profit from operations

Other Income

Cash based income

Cash Book receipts side

Adjusted with:

Accrued incomes

S O A-opening/Year-end Adjustments

Unearned incomes

S O A-opening/Year-end Adjustments

Incomes against payables

Discounts

Creditors accounts Dr side

Incomes against fixed assets

Gain on disposal

S O A-opening/Cash Book receipts

Net profit

Result

Name of the Organization

Balance Sheet

As on December 31 20x7

Source of Information

Rs.

Assets

Fixed Assets

S O A-opening

Addition

Cash Book payment side

Disposal

Year-end Adjustments

Depreciation

Year-end Adjustments

Investments

S O A-opening

Addition

Cash Book payment side

Disposal

Year-end Adjustments

Current Assets

Stocks

Year-end Adjustments

Debtors

Debtors Account

Prepaid expenses

Year-end Adjustments

Accrue incomes

Year-end Adjustments

Bank

Cash Book (Bank Account)

Cash

Cash Book (Cash Account)

Total

Result

Advance Financial Accounting (FIN-611)

Owner's Equity

Opening balance

S O A-opening

Fresh capital

Cash Book receipts side

Net profit

Income Statement

Drawings

Cash Book payment side

Liabilities

Loans

Further loan taken

Cash Book receipts side

Repayment of loan

Cash Book payment side

Current liabilities

Creditors

Creditors Account

Accrued expenses

Year-end Adjustments

Unearned incomes

Year-end Adjustments

Bank overdraft

Cash Book

Total

Result

Cash Book

Payment

Amount

Receipts

Amount

Rs.

Opening balance

xxx

All payments either

xxx

relating to capital or

All

receipts

either

xxx

revenue payments

relating to capital or

xxx

revenue receipts

Closing balance

xxx

Debtors Account

Decrease in Debtors

Amount

Increase in Debtors

Amount

Rs.

Opening balance

xxx

Cash received from debtors

Xxx

Discount allowed

xxx

Bad debts

Credit sales

xxx

Sales return

xxx

Closing balance

xxx

Creditors Account

Decrease in Creditors

Amount

Increase in Creditors

Amount

Rs.

Cash paid to creditors

xxx

Opening balance

xxx

Discount received

xxx

Credit purchase

xxx

Purchase return

xxx

Closing balance

xxx

Advance Financial Accounting (FIN-611)

Statement of Affairs as on opening date

Opening Assets

xxx

Opening Liabilities

(xxx)

Owner's Equity

xxx

Practice Questions

Q.1

From the following given information you are required to prepare Income Statement and

Balance Sheet for the year 2007.

Cash Book

Receipts

Amount

Payment

Amount

Rs.

Opening balance b/f

1,500 Salaries and wages

2,000

Cash sales

12,000 Rent and rates

800

Received from Debtors

25,000 Electricity bill

500

Loan from brother

10,000 Drawings

15,000

Paid to creditors

24,000

Closing balance c/f

6,200

48,500

Debtors Account

Amount

Rs.

Opening balance b/f

8,000 Cash

received

from

25,000

debtors

200

Credit sales

22,000 Discount allowed

300

Bad debts

4,500

30,000 Closing balance c/f

30,000

Creditors Account

Amount

Rs.

Cash paid to creditors

24,000 Opening balance

5,500

Discount received

400 Credit purchase

25,000

Closing balance c/f

6,100

30,500

Statement of Affairs as on opening date

Rupees

Opening Assets

Furniture

20,000

Stocks

6,000

Debtors

8,000

Cash

1,500

35,500

Opening Liabilities

Creditors

5,500

Owner's Equity

30,000

Advance Financial Accounting (FIN-611)

Year end adjustments

Closing stock Rs. 3,200; rent prepaid Rs. 200; salaries owing Rs. 500; and furniture is to be

depreciated @ 10%.

Q.2

Following is a summary of Kashif's bank account for the ended 31 December 2007:

Rs.

Balance 1.1 207

405

Payments to creditors for goods

29,487

Receipts from debtors

37,936

Rent

1,650

Balance 31.12.2007

602

Rates

890

Sundry expenses

375

Drawings

6,541

38,943

All of the business takings have been paid into the bank with the exception of Rs. 9,630. Out of

this, Kashif has paid wages of Rs. 5,472, drawings of Rs. 1,164 and purchase of goods Rs.

2,994. The following additional information is available:

31.12.2006 31.12.2007

Rs.

Stock

13,682

15,144

Creditors for goods

5,624

7,389

Debtors for goods

9,031

8,624

Rates prepaid

210

225

Rent owing

150

Fixtures at valuation

2,500

2,250

You are to draw up profit and loss account for the year ended 31 December 2007 and balance

sheet as on that date. Show all of your workings.

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