accounts from incomplete records Test - 10

if cash received from debtor isn't given it can be calculated by preparing Debtor A/C. the balancing figure in the Debtor A/C shall be considered as cash received from debtor.

trial balance is prepared to check the arithmetic accuracy of account balances but it cant be checked under single entry system since it is prepared from incomplete information. further, under single entry system, only personal accounts are maintained and real and nominal accounts are avoided. and also cash book is maintained which mixes up business as well as private transactions so the trial balance cannot be prepared.

single entry system is suitable for small businesses because they neither want to engage in the complexities of double entry system nor they have enough money to install a double entry system of accounting.

single entry system is not recognised by tax authorities because income tax Act 1961, imposes a legal restriction on the preparation of accounting books based on single entry system.

journal entry for cash sale:-

  cash/bank A/C                 Dr.

            To sales A/C 

(being goods sold for cash)

as evident from above entry, cash sale doesn't affect debtor account. further, debtor account records only items related to credit sales. e.g, credit sale, cash received from the debtor, discount, bad debts etc.

A statement of affairs is a statement of all assets and liabilities. The difference between the amount of the two sides is taken as capital. A statement of affairs is just like the balance sheet.

payment of income tax on owners income is the owner's liability. and if it is paid by the business it is treated as drawing.

under single entry system, only personal accounts are maintained and real and nominal accounts are avoided. and also cash book is maintained which mixes up business as well as private transactions.

single entry system is suitable for small businesses because they neither want to engage in the complexities of double entry system nor they have enough money to install a double entry system of accounting.

statement of affairs looks a like balance sheet but indeed it is different from the balance sheet in many ways. like the statement of affairs does not prove in any sense the arithmetical accuracy of the accounting since it is prepared from incomplete records.