By: vish ks
Submitted: 2010-04-09 03:25:31 | Word Count: 541
First we shall discuss a few disadvantages of single entry system. In this, the two-fold aspect of every financial transaction is not recorded in the book of accounts. For that reason, the arithmetical accuracy of these books of accounts cannot be found out by means of a trial balance method. It is not possible to obtain accurate information regarding the results of business operations since under the single entry system, nominal accounts relating to losses, expenses, gains and incomes have not been maintained. In the absence of these kinds of bookkeeping accounts, the essential classified information required for preparing profit and loss account will not be available. As a result, profit and loss account cannot be prepared. In addition to that the information related to assets and liabilities may not be reliable since the respective accounts have not been properly maintained. Thus, and even balance sheet cannot be made correctly. The consequence is that the true financial position of the company in business cannot be ascertained well. In the non-appearance of various cheques, fraud can be committed more easily and the problem is that it is very difficult to detect such activities.
While ascertaining profit using single entry system, it is not possible to make a regular trading and profit and loss account. This is due to the fact that no record is kept which concerns the nominal accounts. In that case, the exact profit or loss for a relevant period cannot be known. And, the net profit during a particular period can be calculated in a coarse manner. This is done by comparing the financial position of the business at the start of the time period with the financial position of the business at the end of the time period. This warrants the creation of two statements, one at the start itself and the other one towards the end. Comparing the capital amounts on the two dates will reveal whether a profit or loss has been made. A statement of affairs is a document that is in the form of a balance sheet. It will show on the right hand side the estimated amounts of your various assets. Now on the left hand side, it will display the estimated amount of liabilities. The difference of these two represents the net worth or the capital of the owner.
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Initially, a statement of affairs as occurring at the beginning of the financial period should be prepared. The particulars regarding the assets and liabilities as on the specified date should be collected with assistance from the owner. The value of the fixed assets including plant, machinery and fixture costs should also be calculated. From this, the appropriate amount of depreciation has to be deducted. This will provide you with the 'written down value' of these kinds of assets which must be included in the statement of affairs. Stock taking needs to be done physically; lists have to be prepared and the valuation should be done by adopting the cost or the market price as the base, whichever is lower.
