Single Entry System Meaning

Single Entry System may be defined as any system which is not exactly the Double Entry System. In other words, Single Entry System may consist of:

(i) double entry in respect of certaintmnsactions such as cashreceivedfromdebtors, cash paid tó,cedit

(ii) Single Entry in respect of certain transactions such as cash purchases,  sales, expenses made fixed assets purchased. etc.,

(iii) No Entry in respect of certain transactions such as depreciation, bad debts; etc. Thus, a business is said to be using Single Entry System if it is not following completely the principles of Double Entry System of Book-keeping. Kohler defines Single Entry System as, “A system of book-keeping in which as a rule only records of cash and of personal accounts are maintained, itis always incomplete double entry varying with the circumstances”.

Characteristics of Partnership


A partnership business must satisfy all the following essential elements. They must exist together. Absence of any one of them may cut the roots of partnership.

1. There must bean association of two or more persons. A person cannot become a partner with himself. Rcduclion in the number of partners to one shall bring about compulsory dissolution of the firm. The term ‘person’ does not include ‘firm’ (since it does not have a sepae legal existence) and as such only the partners of the firms can enter into partnership provided the combined strength of partners does not exceed the statutory limit. The, number of members in a partnership finn shouhl not exceed 10 if it carrying on a banking business, or 20 if it is engaged in any other business. An association or a partnership finn having members more than this statutory limit must be registered as a joint stock company, under the Companies Act or formed in pursuance of some other Indian law, otherwise it shall become an illegal association.’

2. There must be an agreement entered into by all persons concerned. The relation of partnership arises from contract and not from status or by operation of law. Partners must enter into an agreement voluntarily to form a partnership. The agreement may be express or implied. It may be for a fixed period or for a particular venture or at will, i.e., for an uncertain duration. Co-owners of a property or heirs of a sole proprietor who has died will not ipso facto become prtners in the business, unless there is n agreement between them to carry on business as partners.

Partners must enter into the contract with a motive to earn and distribute amongst themselves profits of the business. Agreement to share losses is not essential. Agreement to share profits also implies an agreement to share losses.

3. Business must be carried on by all or any of the persons concerned acting for all. Partners in a firms act in both the capacities of an agent as well as principal. Active partners act as agents and conduct the business for all the partners under an implied authority to do sq by the latter. Partners are mutual agents for each other and principals for themselves. A partner has an authority to bind his co-partners by his acts done io the ordinary course of the business of the firm. Partner’s liability is not limited to his share in the business but itextends to his personal assets too.


Partnership Accounting – Final Accounts


The method of preparing final accounts for the partnership firm is not different from the one followed for preparation of final accounts of a sole proprietary concern. Some of the important points to be taken carc ofwhile preparing the final accounts are as follows:

1. Capital Accounts 

There will be a separate capital account for each partner. For example, if A, B and C are three partners in a partnership firm, there will be three capital accounts, one each of A, B and C. The capital accounts may be maintained either on fixed or fluctuating capital system.

2. Profit and Loss Appropriation Account 

A separate Profit & Loss Appropriation Account may be prepared to show the distribution of profits among different partners.

3. Guarantee of profit to a partner 

The partnership agreement may provide for a guaranteed amount as profit to a partner (or partners). In such a case, the term of guaranteed profit will be significant only in those years, when the guaranteed amount of profit is more than the share or profit which the partner (or partners) concerned would have got otherwise in the absence of any guarantee. In such an event, the partner (or partners) to whom guarantee has been given will get the guaranteed share of profit while the others will have to share the remaining profits (or bear the losses) as per the terms of the partnership agreement.

Inventory Valuation Methods – Highest in First Out Method

Highest in First Out Method (HIFO) According to this method, the inventory of materials or goods should be valued at the lowest possible prices. Materials or goods purchased at the highest prices are treated as being first issued/sold irrespective of the date of purchase. This method is very suitable when the market is constantly fluctuating because cost of heavily priced materials or goods is recovered from the production or sales at the earliest However, the method involves too many calculations as is the case of FIFO or LIFO method. The method has therefore, not been adopted widely. Base Stock Method The method is based on the contention that each enterprise maintains at all times a minimum quantity of materials or finished goods in its stock. This quantity is termed as base stock. The base stock is deemed to have been created out of the first lot purchased and, therefore, it is always valued at this price and is carried forward as a fixed asset. Any quantity over and above the base stock is valued in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials or finished goods other than the base stock. The base stock method has the advantage of charging out materials/goods at actual cost Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock.

Distinction between Capital Expenditure and Revenue Expenditure

Distinction between Capital Expenditure and Revenue Expenditure

The following are the points of distinction between a Capital Expenditure and a Reyenue Expenditure;

(a) Capital expenditure is incurred for acquisition of fixed assets for the business. While revenue expenditure is incurred for day-to-day operation of the business.

(b) Capital expenditure is incurred for increasing the earning capacity of the business x liie :evënue expenditure is incurred for maintaining the earning capacity of the business.

(c) Capital expenditure is of non-recurring nature while revenue expenditure is of a recurring nature.

( The benefit of capital expenditure is received over a number of years and only a small part of it, as depreciation, is charged to the.profit and loss account each year. The rest appears in the balance sheet as an asset. While the benefit of revenue expenditure expires in the year in which the expenditure is incurred and it is entirely charged to the profit and loss account of the relevant year.

Accounting Basic Concepts

Cost Concept:

According to cost concept, the various assets acquired by a concern or firm should be recorded on the basis of the actual amounts involved or spent.The fixed asset will be recorded at cost at the time of its purchase but it may systematically be reduced in its value by charging depreciation. Example, When a machine is acquired by paying Rs.5,00,000 following cost concept the value of the machine is taken as Rs. 5,00,000.

The Cost Concept creates a lot of distortion too as outlined below:

In an inflationary situation when prices of all commodities go up on average, acquisition cost loses its relevance.

Many assets do not have acquisition costs. Human assets of an enterprise are an example. The cost concept fails to recognise such asset although it is a very important asset of any organization.

Going Concern Concept: 

The financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future.

Business transactions are recorded on the assumption that the business will continue for a long-time.

Fixed assets are valued on the basis of cost less proper depreciation keeping in mind their expected useful life ignoring fluctuations in the prices of these assets.When an enterprise liquidates a branch or one segment of its operations, the ability of the enterprise to continue as a going concern is not impaired. But the enterprise will not be considered as a going concern if it goes into liquidation or it has become insolvent.

Mx.X purchased a machine for his business paying Rs. 10,00,000 out of Rs. 7,00,000 invested by him. He also paid transportation expenses and installation charges amounting to Rs.70000, If he is still willing to continue the business, his financial position will be as follows.

Money Measurement Concept 

As per this concept, only those transactions, which can be measured in terms of money are recorded.

Transactions and events that cannot be expressed in terms of money are not recorded in the business books. Non-monetary events like, death, dispute, sentiments, efficiency etc. are not recorded in the books, even though these may have a great effect.

This concept ignores that money is an inelastic yardstick for measurement as it is based on the implicit assumption that purchasing power of the money is not of sufficient importance as to require adjustment. Entity and money measurement are viewed as the basic concepts on which other procedural concept hinge.

Accounting Period Concept 

As per the Going Concern Concept an indefinite life of the entity is assumed. For a business entity it causes incovenience to measure performance achieved by the entity in the ordinary course of business.

The Periodicity Concept facilitates in:

1) Comparing of financial statements of different periods

2) Uniform and consistent accounting treatment for ascertaining the profit and assets of the business

3) Matching periodic revenues with expenses for getting correct results of the business operations.

Accrual Concept: 

Normally all transactions are settled in cash but even if cash settlement has not taken place, it is proper to record the transaction or the event concerned into the books. Expense is a cost relating to the operations of an accounting period or tot the revenue earned during the period or the benefits of which do not extend beyond that period.

Accrual means recognition of revenue and costs as they are earned or incurred and not as money is received or paid. The accrual concept relates to measurement of income, identifying assets and liabilities.

As per Accrual Concept: Revenue – Expenses = Profit 

Accrual Concept provides the foundation on which the structure of present day accounting has been developed.

CBSE xi Accountancy – Importance Profit and Loss Account

Importance Profit and Loss Account 

The Profit and Loss Account Provides information regarding the following matters:

1.  It provides information about the net profit or net loss earned or suffered by the business during a particular period. Thus, it is an index of the profitability or otherwise of the business.

(ii) The Profit figure disclosed by the Profit and Loss Account for a particular period can be compared with that of the other period. Thus, it helps in ascertaining whether the business is being run efficiently or riot.

(iii) An analysis of the various expenses included in the Profit and Loss Account ant their comparison with the expenses of the previous period or periods helps in taking steps for effective control of the various expenses.

(iv) Allocation of profit among the different periods or setting aside a part of the profit for future contingencies can be done. Moreover, on the basis of profit figures .

Inventory Valuation Method – Specific Identification Method

Specific Identification Method 

According to this method each item of inventory is identified with its cost. The total of the various costs so identified constitute the value of inventory. This method is generally used when the materials or goods have been purchased for a specific job or customer. Such materials or goods when received are earmarked for the job or customer for whom they are purchased and are issued or sold to the particular job or customer whenever demanded.

This technique of inventory valuation can be adopted only by a company which is handling a small number of items. In case of a manufacturing company having a number of inventory items, it is almost impossible to identify the cost of each individual item of inventory. Thus, this method is inappropriate in most cases on account of practical considerations. Moreover, the method opens door to income manipulation when like items are purchased at different prices. For example, a company purchases.10.000 unitE of an item in equal lots of 2,500 each at costs of Rs 2.50, Rs 3, Ps 3.50 and P.s 4 per unit It sells 7,500 units at Rs 4 per unit. In case the management follows this method for valuation of inventory, it can deiemtine the income reported for the period by selecting that lot of units which will produce the desired objective. If it is assumed that the inventory consists of the last lot purchased, the value of the inventory would be a sum of Rs 10,000 as compared to the presumption that the inventory consists of units purchased in the first lot in which case the value of inventory would be Rs 6,250.

Inventory Valuation Method – First In First Out Method

First In First Out Method (FIFO)

Under this method, it is assumed that the materials/goods first received are the first to be issued/sold. Thus, according to this method, the inventory on a particular date is presumed to be composed of the items which have been acquired most recently

Advantages. The FIFO method has the following advantages:

1. It values stock nearer to current market prices since stock is presumed to be consisting of the most recent purchases.

2. It is based on cost and, therefore, no unrealised profit enters into the financial accounts of the company.

3. The method is realistic since it takes into account the normal procedure of utilisinglselling those materials/goods which have been longest in stock.

Disadvantages. The method suffers from the following disadvantages:

Balance Sheet and Statement of Affairs

Balance Sheet and Statement of Affairs

Both balance sheet and statement of affairs show the financial position of a business on a particular date. However, they differ from each other in several ways:

(i) A balance sheet is prepared from the Trial Balance extracted on the basis of ledger accounts. While a statement of affairs is prepared from ledger accounts and several additional information available from other sources.

(u) Balance sheetis assumed to show the true financial position of the business while it may not be the case in case of statement of affairs.

(iii) The omissions of assets and liabilities cannot be easily traced in a statement of affairs while such omissions can be traced in a balance sheet.

(iv) A balance sheet is basically prepared to show the financial position of a business on a particular date. While a statement of affairs helps in ascertaining not only the financial position but also the profit made by the business during a particular period.

(v) The capital account balance shown in the balance sheet is taken from the ledger. While the capital account balance in case of a statement of affairs is the excess of assets over liabilities on a particular date.


Admission of Partner – Adjustment for Goodwill

Adjustment for Goodwill

Since the new partner gets a share in the profits of the rum, he should compensate the old partners for sharing the earning of the firm on account of the reputation or goodwill earned by the partnership firm so fan The problem of goodwill on admission of a new partner can be dealt in two different ways:

1. When the goodwill account already appears in the books.

2. When the goodwill account is not appearing in the books at the time of admission of a partner.

If the goodwill account is already appearing in the books. There can be three situations:

The goodwill account is appearing at a proper value. In such an event no adjustment will be required for goodwill.

A and B are sharing profits in the ratio 3 : 2. They admit a new partner C with 1/5 share in the profits. At the time of admission of C, goodwill is appearing in the firm’s books at Ps 10,000 and it is agreed by all partners (including C) that it is properly valued. Should C pay anything for goodwill?


Since goodwill is already appearing in the books, it shows that the old partners have already got credit to their capital accounts with the value of goodwill. Moreover, it is properly valued and hence C will not be required to pay anything for goodwill nor any further adjustment will be required.

(ii) The goodwill account is to be revalued. In such an event entry will be made only with the difference. The amount of over or under-valued goodwill is debited or credited to the old partners in the old ratio and credited or debited to goodwill account.