Introduction To Single Entry And Incomplete Records SS2 Financial Accounting Lesson Note

MEANING

This is a 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 a proper accounting system. To prepare a normal accounting report, an accountant has to use his or her mental experience and ingenuity to prepare the accounts or financial reports from incomplete records. 

FEATURES OF SINGLE ENTRY/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 organized.
4. Mostly, records are kept on loose sheets or only cash books are kept.
5. There is no accounting system in such an organization.
6. Record keeping is flexible.

AREAS WHERE SINGLE-ENTRY ACCOUNTING SYSTEMS ARE USED

Areas where single accounting systems are used are as follows:

1. Schools     
2. Government parastatals and agencies
3. Club associations, unions (not-for-profit organizations) and so on.
4. Sole traders, or small-scale business
5. Organizations that have no finance or accounting unit
6. Businesses or companies that are victims of artificial or natural disasters.
7. Business where records are kept on loose sheets.
8. Preparation of Statement of Affairs: A statement of affairs is the summary of a firm’s or a business’s assets, liabilities and owners’ stake at any given time     

 It could be drawn at the beginning or 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 is all fixed assets, a total of debtors and creditors, owing and prepaid expenses, cash in hand and at the bank and so on.

                                                                                                                                                                                                                      When two statements of affairs for different periods are compared, it will help to ascertain the following:

The format for the statement of affairs is given in the following:

a) Opening Statement of Affairs:

                                           N

Fixed assets                     XXX

Current assets                 XXX

                                         XXX

Less: Liabilities               (XXX)

Opening Capital               XXX

Opening capital = Total assets – Liabilities

b) Closing Statement of Affairs

                                  N

Fixed assets                     XXX

Current assets                 XXX

Less: Liabilities                XXX

Closing Capital                XXX

c) Computation of profit Between the Two Profits

Profit or loss can also be computed as follows:

a) Opening capital + Profit – Drawings + Additional capital = New or closing capital 

b) Profit = New capital + Drawing – Opening Capital – Additional Capital 

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 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:

1. Cashbook
2. Sales ledger
3.  Purchases ledger
4. Assets and liabilities account
5. Nominal accounts

If such conversion is done properly, a trial balance could be drawn to test the arithmetical accuracy of the records. For 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 prepaid either at the beginning or 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.

Example:

Arsenal ventures had 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 owned N150,000 and the closing stock was valued at N10,000

The following additional information was available:

You are required to prepare:

2008. Statement of affairs as of January 2008.
2009. Trading, profit and loss account for the year ended 31 December 2008 and the balance sheet as of that date.