chapter 15

SINGLE ENTRY
 Objectives
To understand the concept of single entry system in contrast to
double entry system.

To determine net income using the single entry method.

To be able to prepare financial statements based on single entry

records.
CHARACTERISTICS OF SINGLE ENTRY

The very heart of the accounting process is the analysis of the dual effect of each
transaction on the basic accounting model "Assets = Liabilities + Capital"

All transactions are normally analyzed and recorded in terms of debits and credits.

This system is called the double entry system of bookkeeping.

A system of record keeping in which transactions are not analyzed and recorded in
the double entry framework is called a single entry system.

Incomplete records are said to be maintained on a single entry basis.

 CHARACTERISTICS OF SINGLE ENTRY

Under the single entry system, the records maintained are represented only by the so-
called "bare essentials".

Normally, the records 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 of the transaction is made.

With respect to accounts receivable and accounts payable, only a list of customers and
creditors is made with their corresponding balances.
SINGLE ENTRY METHOD

Under the single entry method, the computation of 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.
SINGLE ENTRY METHOD FORMULA FOR PROPRIETORSHIP OR
PARTNERSHIP

The single entry method

of determining net
income or loss is also
known as net assets FORMULA FOR CORPORATION
approach or capital
maintenance approach.
ILLUSTRATION 1

Capital is the excess of total assets over total liabilities.

ILLUSTRATION 2
ILLUSTRATION 3

The procedure is to determine the effect of the changes in assets and liabilities on net
assets whether the change in the asset or liability increases or decreases the net assets.

Increases in assets and decreases in liabilities increase net assets while increases in
liabilities and decreases in assets decrease net assets.
 The dividend paid is added back to net assets because it decreased net assets but not
representing profit or loss.

The increase in share capital and increase in share premium are deducted because they
increased net assets but not representing profit or loss.
 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
PREPARATION liabilities.
OF
FINANCIAL The formulas used in converting cash basis to
STATEMENTS accrual basis of accounting are useful and such
formulas involve the following computation:
1. Sales

2. Purchases

3. Income other than sales

4. Expenses in general
 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.
PREPARATION
OF
For example, cash could be determined by count and by
FINANCIAL
examining bank statements.
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.
PREPARATION
OF
FINANCIAL Accounts payable and notes payable could be
STATEMENTS 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.
ILLUSTRATION
 SOLUTION
The first step is to determine the capital balance at the beginning and
end of the year. The formula is "total assets minus total liabilities
equals capital balance"

The following computations are necessary for the preparation of the

traditional income statement.
ANOTHER ILLUSTRATION
 Observe that the note payable-bank is
deducted from the total notes payable on
December 31 because the note did not arise
from purchase of merchandise. The note is the
result of borrowing from the bank.
Observe that the note receivable
discounted is added back at face value.
Observe that the income statement shows a net income which is the same as the net income
computed under the single entry formula.
PROBLEMS
15-1 C
January 1 December 31
Total assets 5,000,000 7,500,000
Total liabilities 2,000,000 3,200,000

Equity 3,000,000 4,300,000

Increase in equity (4,300,000 - 3,000,000) 1,300,000

Dividend paid 250,000

Total 1,550,000
Issue price of share capital at a premium ( 800,000)

Net income 750,000

Share capital at par 500,000

Share premium 300,000

Total issue price 800,000

15-2 A
Increase in share capital (5,750,000 - 5,000,000) 750,000
Increase in share premium (1,500,000 -1,000,000) 500,000

Share dividend 1,250,000

Retained earnings - December 31 4,500,000

Share dividend 1,250,000
Cash dividend 1,000,000

Total 6,750,000
Retained earnings - January 1 (3,500,000)

Net income 3,250,000

15-3 A
Retained earnings - January 1 (SQUEEZE) 1,400,000
Net income 800,000
Prior period error - overdepreciation 100,000

Total 2,300,000
Dividend declared ( 600,000)

Retained earnings - December 31 1,700,000

The beginning balance of retained earnings is “squeezed" by working back from the ending balance.

Total shareholders' equity - December 31 5,000,000

Less: Share capital 3,000,000 3,300,000
Share premium from treasury shares 300,000 1,700,000

Retained earnings - December 31 1,700,000

15-4 C
Effect on equity
Increase in assets 8,900,000
Increase in liabilities (2,700,000)

Net increase in equity 6,200,000

Add: Dividend 1,300,000

Total 7,500,000

Less: Increase in share capital 6,000,000

Increase in share premium 600,000 6,600,000

Net income 900,000

Increase in asset will increase equity and decrease in asset will decrease equity.

Increase in liability will decrease equity and decrease in liability will increase equity.
15-5 C 15-6 A

Effect on equity
Increase in assets 200,000 IIncrease in assets 500,000
Increase in liabilities Decrease in liabilities 800,000
(1,000,000 - 840,000) (160,000)
Net increase in equity 1,300,000
Increase in owners' equity 40,000 Shareholders' equity - beginning 2,000,000
Excess of share capital issued over
dividends paid (240,000) Shareholders' equity - ending 3,300,000

Net loss (200,000)

15-7 B
Shareholders' equity (3,000,000 / 150%) 2,000,000
Contributed capital (1,500,000)

Retained earnings - December 31 500,000

Share capital 1,000,000

Share premium 500,000

Contributed capital 1,500,000

Total liabilities 5,000,000 50%

Shareholders' equity 2,000,000 100%

Total assets 3,000,000 150%

Retained earnings - January 1 (SQUEEZE) 1,300,000

Net loss (100,000)
Dividends declared (700,000)

Retained earnings - December 31 500,000

15-8 A
Increase in Cash 800,000
Decrease in Accounts receivable (400,000)
Increase in Inventory 300,000
Increase in Equipment 950,000
Increase in Note payable - bank (500,000)
Decrease in Accounts payable 600,000

Increase in assets 1,750,000

Dividend paid 1,500.000

Total 3,250,000

Increase in share capital (700,000)

Increase in share premium (300,000)
Error (250,000)

Net income 2,000,000

15-9 A
Effect on equity
Increase in cash 1,500,000
Increase in accounts receivable 3,500,000
Increase in inventory 3,900,000
Decrease in investments (1,000,000)
Increase in equipment 3,000,000
Decrease in accounts payable 800,000
Increase in bonds payable (2,000,000)

Net increase in equity 9,700,000

Dividend paid 1,500,000

Total 11,200,000
Increase in contributed capital (100,000 x 30) (3,000,000)
Increase in donated capital (2,000,000)

Net income for current year 6,200,000

15-10 3.)
A
Cash - January 1 (Investment) 2,000,000
Collections of AR (2,050,000 - 600,000) 1,450,000
1.) B Total 3,450,000
Less:
Accounts payable - December 31 750,000
Payment of account payable 2,000,000
Payments to trade creditors 2,000,000
Payment of expenses 100,000 2,100,000

Total purchases 2,750,000 Cash - December 31 1,350,000

3.) B
2.) B Sales 2,050,000
Cost of goods sold:
Total purchases 2,750,000
Purchases 2,750,000
Less: Unadjusted debit balance of Merchandise inventory - 12/31 (squeeze) (450,000) 2,300,000
merchandise account (700,000)
Gross loss (250,000)
Sales 2,050,000 Expenses (100,000)

Net loss (350,000)

15-12
15-15
 EYYY EYYY
EYYY

EYYY

THANK YOU!
EYYY
EYYY

EYYY EYYY
EYYY