Module Two: Bookkeeping and Accounting
Unit 2: Book keeping
3.2 Bookkeeping Systems
3.2.1 Single - entry system
The primary book keeping record in single-entry book keeping is the cashbook which is similar to a checking (chequing) account register but allocates the income and expenses to various income and expense accounts Separate account records are maintained for petty cash, accounts payable and receivable and other relevant transactions such as inventory and travel expenses.
The main characteristic of this system is the keeping of personal accounts only.
For example, a trader who operates this system will certainly have a cashbook, but he may or may not write the cashbook up correctly, since he alone operates the books and the business. He will have access to his bank account and this is enough for him to know the state of the business. Besides the cashbook, he will also keep his customers accounts to whom goods are sold on credit just for the record. For creditors he may not bother much to record their transactions, since this is based on personal dealings.
This is one of the problems often encountered when the double entry system is not in use. Other accompanied problem of the single entry system are non keeping of the following records:
i. Accurate Expenses Account
ii. Total sales and purchases of Goods iii. Accurate figures for creditors
iv. Acquired Assets of the business (besides the debtors) v. Accurate figure for capital Account at any given time.
When these records are not in place, it will be very difficult to have complete records leading to trial balance.
To prepare the profit and Loss Account and a balance sheet from single entry book-keeping, the following procedure are recommended:
i. Build up a statement of Affairs and capital Account: This requires the value of assets and liabilities to be determined in facts and figures. This is done by taking the value of:
ii. Cash available at the beginning and end of a trading period including cash at bank.
iii. Available assets both at the beginning and close of business e.g furniture, machinery, stock in trade and the value of debtors including prepaid and bills receivable.
iv. Consider the value of sundry creditors, this will include personal advances to the proprietor, bank overdrafts, bills payable and outstanding expenses owing.
v. Construct a capital account for the owner of the business. On credit (Cr) side insert the opening balance of the capital, then add any additional capital contributed either in the form of cash or of other assets.
On the Debit side enter the closing balance of capital at the end of the period. The difference between the two sides of the capital account will represent the profit or loss for the period.
Note: If the opening capital exceeds the closing capital, such excess is considered to be a loss and where the closing capital exceeds the opening capital, it is regarded as profit for the period.
Example 1
The following is an example of a single entry record, Prepare a statement of Affairs and statement of profit for the year ended.
Ascertain both the opening and closing capital.
Jan 1st Dec 31st
N N
Stock - in -trade 25,000 80,000
Machinery 15,000 40,000
Furniture 30,000 50,000
Debtors 60,000 75,000
Creditors 55,000 100,000
Insurance Prepaid - 2,500
Electricity prepaid 4000 6,750
Cash in hand 30,000 12,000
Cash at book 50,000 37,500
By January 1st, accrued expenses was N3,000 and wages owing was N11,200. At the end of the year, 5% provision for Bad debts was to be set aside. Also at the close of the business rent owing was N 8500 and bills payable was N11,150. The amount withdrawn by the owner in the year was N20,000. Within the year, he sold his used car for N 40,000 and the proceeds paid into his business account.
i. Find the value of sales in the period ii. Find the value of purchases in the period.
iii. Calculate the cost of goods sold
Where the opening stock and purchases are added together, the result is the cost of goods available for sale. When closing stock is deducted, the resulting figure is cost of Goods Sold.
iv. Then find the Gross profit
To find sales and purchases figure:
SALES CONTROL ACCOUNT Dr - Opening value of debtors Cr - Cash received from debtors Cr - Closing value of debtors
The difference between the debit and credit sides represents the value of sales in the period,
PURCHASES CONTROL ACCOUNT Dr - Cash paid to Creditors
Cr - Opening value of creditors and take down below the lines.
The “difference” between the debit and credit sides represents the value of purchases in the period.
The following transactions shows the preparation of sales control Account and the purchases control Account.
N Opening figure of debtors for the year, Jan 1st 200-1 40,000 Opening figure of creditors for the year, Jan 1st 200-1 55,000 Cash received from debtors within the year 250,000
Cash paid to creditors within the year 180,000
Closing figure of creditors at the end of trading Dec 31 200-1 35,000 Closing figure of debtors at the end of trading Dec 31 200-1 60,000
Solution:
Example 1
Sales Control Account
200-1 N 200-1 N
Jan 1 Dec 31 200-2 Jan 1
Balance b/f Sale (difference) Balance b/d
40,000 270,000 310,000 60,000
Dec 31 Cash Balance c/d
250,000 60,000 310,000
Purchases Control Account
N 200-1 N
200-1 Dec 31 200-2
Cash
Balance c/d 180,000 35,000 215,000
Jan 1 Dec 31 200-2 Jan 1
Balance b/f
Purchases differences
Balance b/d
55,000 160,000 215,000 35,000 Statement of Affairs as at 1st January
N N N N
Capital Fund Cash Introduced (difference)
Current Liabilities:
Creditors
Accrual expenses Wages owing
55,000 3,000 12,000
144,000
70,000
214,000
Fixed Assets Machinery Furniture Current Assets Stock
Debtors Electricity prepaid Cash in hand Cash at bank
15,000 30,000
25,000 60,000 4,000 30,000 50,000
45,000
169,000 214,000
Note:
Under the capital fund, cash introduced in January was arrived at by substracting the current liabilities from the total of both fixed and current assets. This difference
between Assets and liabilities in the statement of Affairs is the cash introduced (capital) on 1st January.
2. Preparation of Statement of Profit
After the opening statement of Affairs has been opened and the capital ascertained the next step is to prepare the statement of profit for the year. But before this is done, the closing capital will have to be ascertained as well.
Capital at the close of business is ascertained thus:
DR CR
ASSETS:
Machinery Furniture Stock in trade Debtors Cash
Electricity Prepaid Insurance
Bank
LIABILITIES Creditors Rent Owing Bills payable
Closing capital (difference)
N 40,000 50,000 80,000 75,000 12,000 6,750 2,500 37,500
303,750
N
100,000 8,500 11,500 183,750 303,750
Before you prepare the “statement of profit”, observe the following steps.
1. Find the difference between the opening and closing capital. The difference given the apparent “profit” for the year.
2. Note the withdrawals made by the owner of the business, and any introduction of capital during the trading period. Also note the amount by which fixed assets have been depreciated. The same thing applies to Bad debts provision.
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST DECEMBER
N N
Dec 31 Sundry Liabilities Closing capital c/d
Opening Capital Jan 1
Sales (car)
Bad debts (provision) Net Profit
120,000 183,750 303,750
144,000 40,000 3,750 16,000 203,750
Dec 31
Dec 31
Sundry Assets
Capital b/d Drawing
303,750 303,750
183,750 20,000
203,750
CAPITAL ACCOUNT
N N
Dec 31 Drawings
Balance c/d 20,000
140,000 160,000
Jan 1 Balance c/d
Net profit 144,000
16,000 160,000