FINANCIAL ACCOUNTING BCM2B02 B Com II Semester CORE COURSE 2019 ADMISSION ONWARDS UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION Calicut University P O Malappuram Kerala India 673 635 UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION CORE COURSE B Com II SEMETER FINANCIAL ACCOUNTING Prepared by Rajan P Assistant Professor of Commerce School of Distance Education University of Calicut Afeefa Assistant Professor of Commerce School of Distance Education University of Calicut Scrutinized By Dr E K Satheesh Prof Dept of Commerce University of Calicut School of Distance Education CONTENTS PAGE NUMBER 04 22 23 108 109 180 181 221 222 266 267 268 MODULE Module 1 Module 2 Module 3 Module 4 Module 5 Syllabus Financial Accounting 3 School of Distance Education MODULE 1 ACCOUNTING FROM INCOMPLETE RECORDS SINGLE ENTRY SYSTEM Modern financial accounting is based on double entry system under double entry system both the aspect of a transaction debit and credit are recorded As a result all personal Real and nominal accounts are opened But this method requires more time efforts and money Hence small sole proprietor and partnership firms do not follow strict rules of double entry system They maintain only cash book and personal accounts No other accounts or records are maintained This method of accounting known as single entry system Single entry system is a system of accounting which does not follow the double entry principles Under this system accounts relating to debtors and creditors are maintained Kohler defines single entry system as a system of book keeping which as a rule only records of cash and personal accounts are maintained it is always incomplete double entry varying with circumstances It does not follow strict double entry principles The system may differ from firm to firm and therefore no uniformity The system suitable in case of small firms partnership firm Hence it is not suitable Features of single entry system Maintenance of personal accounts Maintenance of cashbook Dependence on original vouchers i ii iii iv v vi ii iii iv v for corporates Merits It is simple method of accounting It is economical It is suitable for small enterprises It is possible to record transactions quickly Demerits 1 Arithmetical accuracy cannot be checked Financial Accounting 4 School of Distance Education 2 3 4 5 6 7 Nominal accounts are not maintained It does not record of all assets and liability Financial position of business cannot be judged True profit cannot be ascertained It is not suitable for limited companies It is not acceptable to income tax authorities Difference between single Entry system and double entry system Basis for Comparison Meaning Nature Type of recording Errors Single Entry System The system of accounting in which only one sided entry is required to record financial transactions is Single Entry System Simple Incomplete Hard to identify Ledger Personal and Cash Account Small Enterprises Difficult Preferable for Preparation of Financial Statement Suitable for tax purposes No Financial position Arithmetical Accuracy Types of Single Entry System Cannot be ascertained easily No Double Entry System The accounting system in which every transaction affects two accounts simultaneously is known as the Double Entry System Complex Complete Easy to locate Personal Real and Nominal Account Big Enterprises Easy Yes Can be ascertained easily yes 1 Pure Single Entry System In this method only the personal accounts are maintained and there is no information present concerning the sales and purchases cash in hand and bank balance 2 Simple Single Entry System In a simple single entry system cash book is maintained along with the personal accounts and these are maintained as per double entry system of bookkeeping Cash received or paid from to business debtors or creditors are merely written on the bills issued or received Financial Accounting 5 School of Distance Education 3 Quasi Single Entry System In this system subsidiary books such as sales book purchases book bills receivable book and bills payable book are maintained in addition to cash book and personal accounts Statement of Affairs Statement of affairs SOA is also identified as a record of financial position of a particular business entity at a given time The key purpose of SOA is to afford relevant information for the interested parties such as shareholders customers employees competitor etc Rather than exhibiting book values of the assets and liabilities SOA considers the amount at which the organization can recover after selling off their assets and settling their outside obligations Difference between Statement of Affaires and balance sheet Basis of Difference 1 Objective Balance Sheet Statement of Affairs Main objective of making balance sheet is to show the financial position of any organisation Main objective of making statement of affairs to find the opening and closing capital in single entry system and in the liquidation of company to find surplus or deficiency on the basis of estimated value of assets and liabilities of company 2 System of Book Keeping It follows double entry It follows the single entry system of book system of book keeping keeping Financial Accounting 6 School of Distance Education When balance sheet s both 3 Arithmetical Correctness side are matched it means It does not prove the arithmetical it shows also the correctness because it is prepared just arithmetical correctness information of accounting record It is not Because it is prepared from prepared on the basis of trial balance trial balance and trial balance is prepared from the balance of ledger accounts 4 Actual and Estimated Value 5 Finding of Mistake All assets and liabilities are All assets and liabilities are shown on the shown on the actual value basis of estimation If we forget to show any asset or liability our balance sheet will not match With this we can find the mistake Because all the assets and liabilities are shown on our past estimation so if we forget any asset or liability we can not find from statement of affair because due to wrong estimation we can show less or more value of asset or liability 6 Proof in Court accepts balance sheet Court as proof of valid Court does not accept it as proof of information financial position of organisation because there is chance of wrong estimation of assets and liabilities Difference between profit and loss account and Statement of profit or loss Profit and loss account 1 2 It is an account It
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