SINGLE ENTRY / INCOMPLETE RECORDS 2
SECOND TERM SCHEME OF WORK FOR SS 2 FINANCIAL ACCOUNTING LESSON NOTE
SCHEME OF WORK WITH WEEKLY LESSON NOTES FOR SS 2 SECOND TERM FINANCIAL ACCOUNTING
SUBJECT : FINANCIAL ACCOUNTING
CLASS : SS 2
TOPIC : SINGLE ENTRY / INCOMPLETE RECORDS 2
WEEK : WEEK 6
PREVIOUS LESSON :
SINGLE ENTRY / INCOMPLETE RECORDS 1
Objective: By the end of the lesson, students will be able to:
- Explain the concept of single-entry accounting system.
- Describe the steps involved in preparing a Profit and Loss Account and Balance Sheet from incomplete records.
- Prepare Debtors and Creditors Control Accounts formats and explain what each of them reveals.
- Understand the advantages and disadvantages of using single-entry accounting system.
Materials:
- Whiteboard and markers
- Handouts on single-entry accounting system, Debtors and Creditors Control Accounts formats, and steps involved in preparing a Profit and Loss Account and Balance Sheet from incomplete records.
- Examples of incomplete records and financial statements prepared from incomplete records
CONTENT
SINGLE ENTRY / INCOMPLETE RECORDS 2
Single Entry /Incomplete Records (i) Introduction (ii) Steps Involved in preparing a P&L A/C and Balance Sheet from Incomplete Records (iii) Examples
(i) Introduction: Single Entry or Incomplete Records is a method of maintaining accounting records in which only one aspect of a transaction is recorded.
This method is generally used by small businesses or individuals who do not require an elaborate accounting system. With Single Entry, the financial transactions of a business are not recorded in a systematic manner like Double Entry.
As a result, it becomes challenging to prepare financial statements like the Profit and Loss Account and Balance Sheet
(ii) Steps Involved in preparing a P&L A/C and Balance Sheet from Incomplete Records: To prepare a Profit and Loss Account and Balance Sheet from incomplete records, the following steps need to be taken:
Step 1: Prepare a Statement of Affairs: This statement records the assets and liabilities of a business at a specific point in time. This helps in determining the owner’s capital.
Step 2: Determine the profit or loss for the period: The profit or loss is calculated by comparing the opening capital balance with the closing capital balance, taking into account any additional investments or drawings made by the owner.
Step 3: Adjustments for non-cash transactions: If any non-cash transactions have taken place, like the purchase of an asset on credit, then an adjustment needs to be made to reflect the actual cash position.
Step 4: Prepare the Profit and Loss Account: The profit and loss account is prepared by listing all the incomes and expenses for the period. The net profit or loss is then calculated.
Step 5: Prepare the Balance Sheet: The balance sheet is prepared by listing all the assets and liabilities of the business. The owner’s capital is then calculated by subtracting the liabilities from the assets
(iii) Example: Suppose Mr. Adewale runs a small business and maintains incomplete records. The following information is available for the year ended December 31, 2022:
Opening Capital: ₦10,000 Closing Capital: ₦14,000 Drawings during the year: ₦2,000 Sales during the year: ₦50,000 Purchases during the year: ₦30,000 Expenses during the year: ₦8,000 Amount owed to suppliers at the end of the year: ₦2,500 Amount owed by customers at the end of the year: ₦1,500 Furniture purchased on credit during the year: ₦5,000
Using the steps mentioned above, we can prepare a Profit and Loss Account and Balance Sheet:
Step 1: Prepare a Statement of Affairs:
Assets: Cash at Bank: ₦3,000 Debtors: ₦1,500 Furniture: ₦5,000 Total Assets: ₦9,500
Liabilities: Creditors: ₦2,500 Total Liabilities: ₦2,500
Capital: ₦7,000 (i.e. ₦9,500 – ₦2,500)
Step 2: Determine the profit or loss for the period:
Opening Capital: ₦10,000 Add: Additional Investment: ₦0 Less: Drawings: ₦2,000 Add: Profit for the Year: ₦6,000 Closing Capital: ₦14,000
Step 3: Adjustments for non-cash transactions:
No adjustments required in this case.
Step 4: Prepare the Profit and Loss Account:
Sales: ₦50,000 Less: Cost of Goods Sold (Purchases): ₦30,000 Gross Profit: ₦20,000 Less: Expenses: ₦8,000 Net Profit: ₦12,000
Step 5: Prepare the Balance Sheet:
Assets: Cash at Bank: ₦3,000 Debtors: ₦1,500 Furniture: ₦5,000 Total Assets: ₦9,500
As you can see from the example above, preparing financial statements from incomplete records can be challenging. It requires a thorough understanding of accounting principles and practices. The process involves reconstructing the financial transactions of a business by analyzing the available information.
One of the significant challenges with incomplete records is that there is a high probability of errors, omissions, and discrepancies. For instance, if a business owner fails to record a transaction, it may lead to an inaccurate representation of the business’s financial position. Therefore, it is essential to ensure that all transactions are recorded accurately and on time.
Another challenge is that preparing financial statements from incomplete records may not provide a complete picture of the business’s financial position. This method only provides a snapshot of the business’s financial position at a particular point in time. It does not provide information on how the business has performed over time.
Despite the challenges, incomplete records may be the only option for small businesses that do not have the resources to maintain an elaborate accounting system. It is still essential to keep track of financial transactions and maintain accurate records to the best of one’s ability.
Single entry or incomplete records is a method of maintaining accounting records that is suitable for small businesses or individuals who do not require an elaborate accounting system. Although it can be challenging to prepare financial statements using this method, it is essential to maintain accurate records to the best of one’s ability
Single entry or incomplete records are not recommended for larger businesses or those that have more complex financial transactions. This is because it may not provide a complete picture of the business’s financial position, and it can be challenging to reconcile transactions accurately. Therefore, businesses that have a higher volume of transactions are better off using a double-entry accounting system.
However, single entry or incomplete records may be suitable for small businesses that have a limited number of transactions. It can be used to record basic financial transactions such as sales, purchases, and expenses. The advantage of using this method is that it is simple and easy to maintain, and it does not require specialized knowledge of accounting principles and practices.
It is important to note that single entry or incomplete records may not be sufficient for tax purposes. Tax authorities may require businesses to maintain proper accounting records and provide financial statements that meet specific standards. Therefore, businesses should ensure that they comply with all tax regulations and maintain proper accounting records.
In conclusion, single entry or incomplete records may be suitable for small businesses that have a limited number of transactions. However, it is essential to maintain accurate records to the best of one’s ability and comply with all tax regulations. Businesses that have a higher volume of transactions or are required to provide financial statements that meet specific standards should consider using a double-entry accounting system or seek professional accounting services
Evaluation
- Debtors control account reveals (a) debtors (b) creditors (c) cash received (d)sales
- In incomplete records creditors control account is prepared to reveal (a) sundry creditors (b) purchases (c) cash paid to creditors (d) discount received
- In adjustment accounts prepaid rent A/C should have _______ balance (a) credit (b) Debit (c) both debit and credit (d) either debit or credits
- In adjusting for final account, accrued wages should have ______ balance (a) debit (b) credit (c) debit and credit (d) debit or credit
- Calculation of provisions for doubtful debts, depreciation, etc is done in step ____ in other to prepare P&L a/c and balance sheet from incomplete records (a) 1 (b) 2 (c) 5 (d) 6
Suggested Solutions
- Debtors control account reveals (a) debtors Debtors control account is a ledger account used to keep track of the total amount owed by the customers or debtors of a business. It records all the sales made to customers on credit, payments received from them, and any discounts given. Therefore, option (a) debtors is the correct answer.
- In incomplete records, creditors control account is prepared to reveal (a) sundry creditors Creditors control account is a ledger account used to keep track of the total amount owed to the suppliers or creditors of a business. It records all the purchases made on credit, payments made to them, and any discounts received. Therefore, option (a) sundry creditors is the correct answer.
- In the adjustment accounts, prepaid rent A/C should have _______ balance (a) credit Prepaid rent is a current asset and represents the advance payment of rent for the future period. The prepaid rent account is debited when the rent is paid in advance, and it is credited when the rent is earned or used up. Therefore, option (a) credit is the correct answer.
- In adjusting for final accounts, accrued wages should have ______ balance (a) debit Accrued wages represent the wages earned by employees but not yet paid by the business. The accrued wages account is debited to record the wages earned but not yet paid, and it is credited when the wages are paid. Therefore, option (a) debit is the correct answer.
- Calculation of provisions for doubtful debts, depreciation, etc. is done in step ____ in other to prepare P&L a/c and balance sheet from incomplete records (c) 5 To prepare the Profit and Loss account and Balance Sheet from incomplete records, the following steps need to be taken:
Step 1: Prepare a Statement of Affairs Step 2: Determine the profit or loss for the period Step 3: Adjustments for non-cash transactions Step 4: Prepare the Profit and Loss Account Step 5: Prepare the Balance Sheet
Therefore, option (c) 5 is the correct answer
General Evaluation
Theory
1. List and explain the six steps necessary to prepare a P&L a/c and balance sheet from incomplete records.
2. Prepare debtors and creditors control accounts formats and highlight what each of them reveals.
3. State three characteristics of single entry accounting system
4. List four disadvantages of single entry accounting system
5. List five steps of converting single entry accounting system to double entry system
6. Explain five differences between a trial balance and a balance sheet
7. State eight items that will cause a disagreement between the Cash Book balance and the Bank Statement balance
Answers
- List and explain the six steps necessary to prepare a P&L a/c and balance sheet from incomplete records.
To prepare a Profit and Loss Account and Balance Sheet from incomplete records, the following steps need to be taken:
Step 1: Prepare a Statement of Affairs The statement of affairs is prepared to determine the owner’s equity in the business. It lists all the assets and liabilities of the business at a specific point in time.
Step 2: Determine the profit or loss for the period The profit or loss for the period is calculated by comparing the opening capital balance with the closing capital balance, taking into account any additional investments or drawings made by the owner.
Step 3: Adjustments for non-cash transactions Any non-cash transactions, such as the purchase of an asset on credit, need to be adjusted to reflect the actual cash position.
Step 4: Prepare the Profit and Loss Account The Profit and Loss Account is prepared by listing all the incomes and expenses for the period. The net profit or loss is then calculated.
Step 5: Prepare the Balance Sheet The Balance Sheet is prepared by listing all the assets and liabilities of the business. The owner’s capital is then calculated by subtracting the liabilities from the assets.
Step 6: Check for accuracy Finally, all the figures on the Profit and Loss Account and Balance Sheet are checked for accuracy to ensure that they reflect the correct financial position of the business
- Prepare debtors and creditors control accounts formats and highlight what each of them reveals.
The format of the Debtors and Creditors Control Accounts is as follows:
Debtors Control Account:
| Date | Particulars | Invoice No. | Amount | Date Paid | Balance |
|---|---|---|---|---|---|
| DD/MM/YY | Sales | INV-0001 | $1,000 | $1,000 | |
| DD/MM/YY | Sales | INV-0002 | $2,500 | $3,500 | |
| DD/MM/YY | Cash Receipt | DD/MM/YY | $2,000 | ||
| DD/MM/YY | Sales Return | INV-0001 | $200 | $3,300 |
The Debtors Control Account reveals the total amount owed by the customers or debtors of a business. It records all the sales made to customers on credit, payments received from them, and any discounts given.
Creditors Control Account:
| Date | Particulars | Invoice No. | Amount | Date Paid | Balance |
|---|---|---|---|---|---|
| DD/MM/YY | Purchase | INV-0001 | $1,500 | $1,500 | |
| DD/MM/YY | Purchase | INV-0002 | $2,000 | $3,500 | |
| DD/MM/YY | Cash Payment | DD/MM/YY | $1,000 | ||
| DD/MM/YY | Discount | $100 | DD/MM/YY | $900 |
The Creditors Control Account reveals the total amount owed to the suppliers or creditors of a business. It records all the purchases made on credit, payments made to them, and any discounts received.
GENERAL EVALUATION QUESTIONS
- State three characteristics of single-entry accounting system.
- Single-entry accounting system is simple and easy to maintain, making it suitable for small businesses or individuals.
- It is based on recording only one aspect of a transaction, i.e., either the cash received or cash paid.
- It is not as accurate or reliable
Homework
- What is the main difference between single entry and double-entry accounting systems? (a) Single-entry records both aspects of a transaction, while double-entry records only one. (b) Single-entry is more accurate than double-entry. (c) Single-entry is used for larger businesses, while double-entry is used for small businesses. (d) Single-entry records only one aspect of a transaction, while double-entry records both aspects.
- What is the purpose of preparing a Statement of Affairs in incomplete records? (a) To determine the owner’s equity in the business. (b) To calculate the total income and expenses for the period. (c) To determine the total amount owed to suppliers. (d) To calculate the total amount owed by customers.
- Which of the following is recorded in a Debtors Control Account? (a) Purchases made on credit (b) Payments made to suppliers (c) Cash received from customers (d) Expenses incurred by the business
- Which of the following is recorded in a Creditors Control Account? (a) Sales made on credit (b) Payments made to customers (c) Cash received from suppliers (d) Purchases made on credit
- What is the purpose of adjusting for non-cash transactions in incomplete records? (a) To reflect the actual cash position of the business. (b) To calculate the total income and expenses for the period. (c) To determine the total amount owed to suppliers. (d) To calculate the total amount owed by customers
- What is the final step in preparing a Profit and Loss Account and Balance Sheet from incomplete records? (a) Check for accuracy (b) Adjust for non-cash transactions (c) Determine the profit or loss for the period (d) Prepare a Statement of Affairs
- Which of the following is a disadvantage of single-entry accounting system? (a) It is more accurate than double-entry. (b) It is suitable for larger businesses. (c) It may not provide a complete picture of the business’s financial position. (d) It is more complex than double-entry.
- Which of the following is an example of a current asset? (a) Building (b) Machinery (c) Inventory (d) Long-term loan
- What is the purpose of a Trial Balance? (a) To calculate the net profit or loss for the period. (b) To prepare the Balance Sheet. (c) To ensure that the total debits and credits are equal. (d) To determine the owner’s equity in the business.
- What is the purpose of a Bank Reconciliation Statement? (a) To calculate the net profit or loss for the period. (b) To ensure that the total debits and credits are equal. (c) To determine the total amount owed to suppliers. (d) To explain the differences between the Cash Book balance and the Bank Statement balance
Lesson Presentation
Procedure:
Introduction (5 minutes)
- Begin by introducing the topic of single-entry accounting system and incomplete records.
- Explain that single-entry accounting system is a method of maintaining accounting records that is suitable for small businesses or individuals who do not require an elaborate accounting system.
Main Presentation (40 minutes) Step 1: Definition and characteristics of single-entry accounting system (10 minutes)
- Define single-entry accounting system and its characteristics.
- Explain how it differs from the double-entry accounting system.
Step 2: Steps involved in preparing a Profit and Loss Account and Balance Sheet from incomplete records (15 minutes)
- List the six steps involved in preparing a Profit and Loss Account and Balance Sheet from incomplete records.
- Explain each step in detail, providing examples where necessary.
Step 3: Debtors and Creditors Control Accounts (10 minutes)
- Provide the Debtors and Creditors Control Accounts formats and explain what each of them reveals.
- Explain how to record transactions in the Debtors and Creditors Control Accounts.
Step 4: Advantages and Disadvantages of single-entry accounting system (5 minutes)
- List the advantages and disadvantages of using single-entry accounting system.
- Explain each advantage and disadvantage in detail.
Summary (3 minutes)
- Single-entry accounting system is a method of maintaining accounting records where only one aspect of a transaction is recorded, usually the cash received or cash paid. It is suitable for small businesses or individuals who do not require an elaborate accounting system.
- The characteristics of single-entry accounting system include simplicity, low cost, and ease of use. It is often used by small businesses or individuals who do not require a complex accounting system.
- The purpose of preparing a Profit and Loss Account and Balance Sheet from incomplete records is to determine the financial position of a business at a specific point in time. It provides a snapshot of the business’s financial performance and is useful for making financial decisions.
- The steps involved in preparing a Profit and Loss Account and Balance Sheet from incomplete records include:
- Prepare a Statement of Affairs
- Determine the profit or loss for the period
- Adjustments for non-cash transactions
- Prepare the Profit and Loss Account
- Prepare the Balance Sheet
- Check for accuracy
- A Debtors Control Account is a ledger account used to keep track of the total amount owed by the customers or debtors of a business. It records all the sales made to customers on credit, payments received from them, and any discounts given.
- A Creditors Control Account is a ledger account used to keep track of the total amount owed to the suppliers or creditors of a business. It records all the purchases made on credit, payments made to them, and any discounts received.
- The purpose of adjusting for non-cash transactions in incomplete records is to reflect the actual cash position of the business. It ensures that the financial statements prepared from incomplete records provide an accurate representation of the business’s financial position.
- The advantages of using single-entry accounting system include simplicity, ease of use, and low cost. It is suitable for small businesses or individuals who do not require a complex accounting system.
- The disadvantages of using single-entry accounting system include its lack of accuracy, limited financial reporting capabilities, and inability to handle complex transactions. It is not suitable for large businesses or those with significant financial transactions.
- The Trial Balance is a statement that lists all the accounts and their balances in a ledger. It is used to ensure that the total debits and credits are equal. The Balance Sheet is a financial statement that lists all the assets, liabilities, and owner’s equity of a business at a specific point in time. It provides a snapshot of the business’s financial position
Conclusion (5 minutes)
- Recap the main points covered in the lesson.
- Provide examples of incomplete records and financial statements prepared from incomplete records.
- Answer any questions from the students.
Assessment:
- Distribute an assignment on single-entry accounting system to the students to test their understanding of the topic.
- Review and grade the assignment to determine the students’ comprehension of the topic
Weekly Assessment /Test
- What is single-entry accounting system?
- What are the characteristics of single-entry accounting system?
- What is the purpose of preparing a Profit and Loss Account and Balance Sheet from incomplete records?
- What are the steps involved in preparing a Profit and Loss Account and Balance Sheet from incomplete records?
- What is a Debtors Control Account and what does it reveal?
- What is a Creditors Control Account and what does it reveal?
- What is the purpose of adjusting for non-cash transactions in incomplete records?
- What are the advantages of using single-entry accounting system?
- What are the disadvantages of using single-entry accounting system?
- What is the difference between a Trial Balance and a Balance Sheet?
