Under single entry system, the records maintained are represented only by the so-called bare essentials and normally these include a record of cash, accounts receivable, accounts payable, property, plant and equipment, and taxes paid.
The major record under the single entry system is the cashbook. The cashbook is maintained showing all receipts and disbursements. And because in a single entry no specific accounts for the receipts and disbursements are debited or credited, only a description thereof is made.
The computation procedure followed in determining net income or loss is simply to compare the capital or retained earnings at the beginning of the year and capital or retained earnings at the end of the same year after taking into consideration withdrawals or dividends and additional investments.
The difference is either net income or net loss. Any increase in capital or retained earnings is net income and any decrease in capital or retained earnings is net loss.
another name for single entry method of determining net income or loss
xx xx
Total Less:: Capital, beginning of the year Additional investment Net income (loss)
xx
xx xx xx xx
Retained earnings, end Add: Dividends declared or paid Other items that decreased retained earnings but not profit or loss Total Less: Retained earnings, beginning Other items that increased retained earnings but not profit or loss Net income (loss)
xx xx xx xx xx xx xx
It should be remembered that increases in assets and decreases in liabilities increase the net assets while increases in liabilities and decreases in assets decrease net assets.
All increases are added and all decreases are deducted except the changes in the following items: Merchandise inventoryin the computation of cost of sales PPEin the computation of depreciation Prepaid expensesin the computation of expenses Deferred or unearned income- in the computation of income other than sales
Cash Accounts receivable Merchandise inventory Prepaid expenses Land Accounts payable Bonds payable Share capital Share premium
Increase (Decrease) 1,500,000 500,000 2,000,000 (100,000) 5,000,000 (1,100,000) 4,000,000 4,000,000 1,000,000
100,000
5,000,000 1,100,000 4,000,000
Total
Net increase in assets Add: Dividends paid Total
10,100,000
4,100,000
6,000,000 1,500,000 7,500,000
5,000,000 2,500,000
Net income
M
Preparation of financial statements
The preparation of the income statement involves the computation of individual revenue and expense balances by reference to the cash receipts and disbursements and the changes in assets and liabilities. The formulas used in converting cash basis to accrual basis of accounting are useful in this case. These formulas involve the computation of SALES, PURCHASES, INCOME OTHER THAN SALES and EXPENSES IN GENERAL.
xx xx
xx
xx
Depreciation
xx
The preparation of the statement of financial position involves inventorying, counting and verification procedures to determine the nature and amount of most of the assets and liabilities.
For example, cash could be determined by count and by examining bank statements. Accounts receivable and notes receivable could be summarized from unpaid sales invoices and promissory notes. Merchandise on hand, supplies and other inventories could be counted and their cost determined from purchase invoices.
The cost of property, plant and equipment could be established by reference to deeds of sale and other documents evidencing ownership of title. Accounts payable and notes payable could be determined from purchase invoices, memoranda, correspondence and even consultation with creditors. Ownership equity or capital would be the difference between the value assigned to assets and liabilities.
LONG PROBLEMS
LANCER STORE
Capital Balance:
5,280,000
3,880,000
Capital, Dec. 31 Add: Withdrawal Total Less: Capital, Jan 1 Investment Net Income
SALES Notes receivable, end Accounts receivable, end Collection of A/R Collection of N/R Sales return Sales Discount Accounts written off-bad debts Total Less: Notes receivable, beg. 400,000 Accounts receivable, beg. 1,600,000 Sales on account Cash sales Total sales 1,200,000 2,000,000 3,000,000 960,000 320,000 100,000 120,000 7,700,000 2,000,000 5,700,000 800,000 6,500,000
Interest expense Interest paid Add: Accrued interest payable, end Less: Accrued interest payable, beg Interest expense 160,000 40,000 (80,000) 120,000
Rent income Rent received Add: Unearned Interest income, beg Less: Unearned interest income, end Rent income 80,000 120,000 (40,000) 160,000
Gain on sale
PURCHASES Notes payable, end Accounts payable, end Payment of N/P Payment of A/P Purchase returns Total Less: Notes payable, beg 720,000 Accounts payable, beg 1,200,000 Purchases on account Cash purchases 480,000 1,040,000 1,520,000 1,280,000 80,000 4,400,000 (1,920,000) 2,480,000 600,000
Total purchases
3,080,000
Depreciation
Equipment, beg Add: Equipment acquired Total Less: Equipment, end Carrying amount of equipment sold Depreciation 1,200,000 400,000 1,600,000 1,120,000 100,000 1,220,000 380,000
Net sales
Sales Sales return Sales discount Net sales 6,500,000 (320,000) (100,000) 6,080,000
Cost of Sales
Merchandise inventory, beg Purchases 3,080,000 Less: Purchase allowances (80,000) Goods Available for sale Less: Merchandise inventory, end Cost of sales 1,600,000
Other Income
Rent income Gain on sale Total other income 160,000 20,000 180,000
Net Sales Cost of Sales Gross income Other income Total income Expenses: Expenses Depreciation Bad debts Interest expense
Net income
(1,420,000) 1,200,000
COMPLEX COMPANY
Cash in bank per book Outstanding checks Adjusted cash in bank Cash on hand Total cash-12/31/11 250,000 (50,000) 200,000 125,000 325,000
Initial cash investment 500,000 Proceeds of loan 500,000 Collections of accounts receivable(SQUEEZE)2,500,000 Total deposits 3,500,000 Customers deposits 75,000 Collections of accounts receivable(SQUEEZE) 600,000 Total 675,000 Disbursement in cash (550,000) Cash on hand-12/31/11 125,000
(2,300,000) 1,700,000
(900,000) 800,000
Complex Company Statement of Financial Position December 31, 2011 Assets Current Assets: Cash Accounts receivable Inventory Non-current Assets: Building Equipment Land Total Assets Current Liabilities: Accounts payable Advances from customers Non-current liability: Notes payable Total liabilities Equity: Share capital Share premium Retained earnings Total liabilities and equity 325,000 850,000 755,000 4,200,00 320,000 1,500,000
1,930,000
6,020,000 7,950,000
7,150,000 7,950,000
b.)
a.)
Restating the comparative amounts for the prior period presented in which the error occurred.
a.)
Restating the opening balances of assets, liabilities, and equity for the earliest prior period presented if the error occurred before the earliest period presented.
Types of errors
a.) Statement of financial position errors
b.)
c.)
Statement of financial position errors affect the statement of financial position or real accounts only, meaning, the improper classification of an asset, liability and capital account. In such a case, an entry is simply made to reclassify the account balances.
Counterbalancing errors
Counterbalancing errors are errors which, if not detected, are automatically counterbalanced or corrected in the next accounting period. In other words, these errors will be offset or corrected over two periods or these errors correct themselves over two periods.
Noncounterbalancing errors
Noncounterbalancing errors are errors which, if not detected, are not automatically counterbalanced or corrected in the next accounting period. In other words, if the net income of one year is understated or overstated, the net income of subsequent year is not affected.