Looking at the topic, we might be asking why it is a single entry? Well, some business owner does not really know how to do accounts…I mean, they don’t know how to record all the transactions properly. It is normal and the answers we get from them is almost the same, that they knew but they don’t have the time to do it.
Normal accounting records should gave both debit as well as credit. Here, what we can say is, when when the records in only filled one sided, either debit or credit. Disaster! And it is a fail system where it should be double entry instead. They may only know to record the entry in the cashbook only because, there where the money goes in and out. For them CASH IS KING!. As long as they can control the cash, then, that’s it.
This single entry somehow potentially causing the financial statement to be incorrect, simple…not balance!.
There are two approaches to settle this matter.
- Comparison method
- Analysis method
A quick method to determine ‘estimated’ profit without preparing financial statement. Hmm..how can it be? What choice do we have when we are force to do the accounts with limited information or no records available.
In determining the profit for the year, we shall go back to basic. We have to play with the capital account. Logically, when we started a business, we had capital, and this capital is being invested into the business and there…the business is built.
The business activities ie the buying, the selling of goods will eventually created profits or losses. Thus, those profits or losses will effect the capital which the owner invested. If the business had a good profit, the capital account will grow and vice versa.
In this method, the profit or losses can be determined from the difference between the owner’s capital at the end and the owner’s capital at the beginning. If it is increased, then it is profit, if the capital amount is lesser than the previous period, then it is said that the company is having a loss. Therefore we need to open up the Statement of Affairs. This statement shows an estimate assets and liabilities of the business at a particular date, the beginning and also at the end of a period. The the difference between the two is the profit for the period.
The analysis method came into the picture to overcome the weakness of comparison method. This method involves the analysis of all transactions that related to sales, purchases, expenses, revenues and cashbooks.
Using this method, we will again use our knowledge of control accounts and other topics that we have already covered. Further we will use as many information available to find our answers. For example, to find total sales, we need to look at the cashbook, the opening balance of our receivables as well as our closing. Open up our control account and start put in the figures, the missing figures then will be your answers. Same goes to purchases and other expenses…
Another one….just calculate for a), b) and c). Fitness Club – Receipts and Payments Account