Introduction to Single Entry and Incomplete Records – SS2 Financial Accounting Lesson Note (First Term)

Single entry, also called one-leg entry or incomplete records, is a system of accounting in which financial transactions are recorded without following the rule of double entry. Records kept this way are inadequate for a proper accounting system. To prepare a normal accounting report, an accountant has to use experience and ingenuity to build the accounts from them.

Behavioural objectives

By the end of the lesson, students should be able to:

• state the meaning of single entry and incomplete records;
• list the features of single entry records;
• identify places where single entry accounting is used;
• prepare opening and closing statements of affairs and compute profit from them;
• list the steps for converting single entry records to double entry and preparing final accounts.

What are the features of single entry and incomplete records?

1. Final accounts are prepared by comparing financial data of two or more years.
2. Accounting information is grossly inadequate.
3. Accounting records or books are not in existence or not well organised.
4. Mostly, records are kept on loose sheets or only cash books are kept.
5. There is no accounting system in such an organisation.
6. Record keeping is flexible.

Where is single entry accounting used?

Single entry accounting is used in the following areas:

1. Schools
2. Government parastatals and agencies
3. Club associations, unions (not-for-profit organisations) and so on
4. Sole traders or small-scale businesses
5. Organisations that have no finance or accounting unit
6. Businesses or companies that are victims of artificial or natural disasters
7. Businesses where records are kept on loose sheets

What is a statement of affairs?

A statement of affairs is a summary of a firm’s or a business’s assets, liabilities and owner’s stake at any given time. It can be drawn at the beginning or the end of every accounting year or period. It is drawn to ascertain any growth or increase in the components of the statement at any point in time.

The information required to prepare the statement includes all fixed assets, the total of debtors and creditors, owing and prepaid expenses, and cash in hand and at the bank.

Comparing two statements of affairs for different periods helps to ascertain the profit or loss for the period, as the format below shows.

Format of the statement of affairs

a) Opening statement of affairs

Opening capital = Total assets – Liabilities

b) Closing statement of affairs

c) Computation of profit between the two statements of affairs

Other ways to compute profit or loss

1. Opening capital + Profit – Drawings + Additional capital = New or closing capital
2. Profit = New capital + Drawings – Opening capital – Additional capital

How are final accounts prepared from incomplete records?

An organisation that keeps single entry or incomplete records may decide to prepare its annual final accounts from inadequate information. This is possible by converting the single entry records to double entry records, using the information available.

The following books need to be opened for the conversion:

1. Cash book
2. Sales ledger
3. Purchases ledger
4. Assets and liabilities accounts
5. Nominal accounts

If the conversion is done properly, a trial balance can be drawn to test the arithmetical accuracy of the records.

Steps for the conversion and preparation of final accounts

1. Prepare the opening statement of affairs to ascertain the opening capital.
2. Prepare the cash book with the details. It must include both the cash and bank accounts, either separately or in one cash book, as the case may be.
3. Prepare the debtors’ and creditors’ ledger control accounts to ascertain the total credit sales and total credit purchases.
4. Prepare a schedule or summary of total sales and purchases by adding the total credit sales and purchases to the cash sales and cash purchases.
5. Prepare control accounts for the nominal items that have amounts outstanding or prepaid at the beginning or the end of the period in question.
6. Prepare any other required working schedules.
7. Prepare the trading, profit and loss account from steps 1 to 6.
8. Prepare the balance sheet.

Worked example: Arsenal Ventures

Arsenal Ventures had the following assets and liabilities as of 1 January 2008.

They do not keep proper records of their business transactions, but the following were extracted from sketchbooks.

On 31 December 2008, debtors owed ₦150,000 and the closing stock was valued at ₦10,000.

The following additional information was available:

You are required to prepare:

1. Statement of affairs as of 1 January 2008.
2. Trading, profit and loss account for the year ended 31 December 2008 and the balance sheet as of that date.

Evaluation

1. What is single entry?
2. State four features of incomplete records.
3. Give four places where single entry accounting is used.
4. What is a statement of affairs, and how is opening capital calculated from it?
5. List the books that must be opened to convert single entry records to double entry.

Assignment

1. Write the formula for computing profit from opening capital, closing capital, drawings and additional capital.
2. List the eight steps for preparing final accounts from incomplete records.
3. Prepare the statement of affairs of Arsenal Ventures as of 1 January 2008.