LESSON # 3

CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING

SYSTEM
1.1 Accounting Records
Accountants of these entities are directed to maintain following set of information,
which although does not constitute a complete accounting system but can work:
a) Cash Book
i. Cash Account
ii. Bank Account
b) Debtors (Accounts Receivables) Ledger
c) Creditors (Accounts Payables) Ledger
d) Statement of Affairs (Opening)
e) Year-end adjustments
i. Closing stock
ii. Depreciation of fixed assets
iii. Provision for doubtful debts
iv. Accruals and prepayments
v. Disposal of Assets
1.2 Preparation of Financial Statements
Now let’s see how Income Statement and Balance Sheet can be prepared with the help
of a set of incomplete records. For this, we will analyze the contents of Income
Statement and Balance Sheet item by item in the following pages.

Name of the Organization

Income Statement
For the year ended December 31 20x7
Source of Information Rs.
Sales
Cash Sales Cash Book receipts side
Credit Sales Debtors account Dr side
Cost of Goods Sold
Opening Stock Statement of Affairs
Purchases
Cash Purchases Cash Book payment side
Credit Purchases Creditors account Cr side
Closing Stock Year-end Adjustments
Gross Profit
Operating Expenses
Cash based expenses Cash Book payment side
Adjusted with:
Accrued Expenses S O A-opening/Year-end Adjustments
Prepaid Expenses S O A-opening/Year-end Adjustments
Expenses against receivables
 Bad Debts/Discounts Debtors account Cr side
Provision for doubtful debts S O A-opening/Year-end Adjustments
Expenses against fixed assets
Depreciation Year-end Adjustments
Loss on disposal S O A-opening/Cash Book receipts
Profit from operations
Other Income
Cash based income Cash Book receipts side
Adjusted with:
Accrued incomes S O A-opening/Year-end Adjustments
Unearned incomes S O A-opening/Year-end Adjustments

Incomes against payables

Discounts Creditors accounts Dr side
Incomes against fixed assets
Gain on disposal S O A-opening/Cash Book receipts
Net profit Result

Name of the Organization

Balance Sheet
As on December 31 20x7
Source of Information Rs.
Assets
Fixed Assets S O A-opening
Addition Cash Book payment side
Disposal Year-end Adjustments
Depreciation Year-end Adjustments
Investments S O A-opening
Addition Cash Book payment side
Disposal Year-end Adjustments
Current Assets
Stocks Year-end Adjustments
Debtors Debtors Account
Prepaid expenses Year-end Adjustments
Accrue incomes Year-end Adjustments
Bank Cash Book (Bank Account)
Cash Cash Book (Cash Account)

Total Result

Owner’s Equity
Opening balance S O A-opening
Fresh capital Cash Book receipts side
Net profit Income Statement
Drawings Cash Book payment side
Liabilities
Loans
Further loan taken Cash Book receipts side
Repayment of loan Cash Book payment side
Current liabilities
Creditors Creditors Account
Accrued expenses Year-end Adjustments
Unearned incomes Year-end Adjustments
Bank overdraft Cash Book
Total Result

Cash Book
Amount Amount
Receipts Payment
Rs. Rs.
Opening balance xxx All payments either relating to capital xxx
or revenue payments
All receipts either xxx
relating to capital or Closing balance xxx
revenue receipts

xxx xxx

Debtors Account
Amount Amount
Increase in Debtors Decrease in Debtors
Rs. Rs.
Opening balance xxx Cash received from debtors Xxx
Discount allowed xxx
Credit sales xxx Bad debts xxx
Sales return xxx
Closing balance xxx

xxx xxx

Creditors Account

Amount Amount
Decrease in Creditors Increase in Creditors
Rs. Rs.
Cash paid to creditors xxx Opening balance xxx
Discount received xxx Credit purchase xxx
Purchase return xxx
Closing balance xxx
xxx xxx
 Statement of Affairs as on opening date

Opening Assets xxx

Opening Liabilities (xxx)
Owner’s Equity xxx

Debit (Dr.) and Credit (Cr.) Rules:

Debit (Dr.) group

Assets Increase Dr.

Expenses Decrease Cr.

Credit (Cr.) group

Owner’s equity Increase Cr.

Liability
Income Decrease Dr.

Company Name
Income Statement
For the year ended -------
Sales xxx
Less: Cost of goods sold
Opening Stock xxx
Add Purchases xxx
Less Closing Stock xxx
CGS xxx
Gross profit xxx
Less Operating expenses xxx
Less Other expenses xxx
Add Other Income xxx
Net Profit xxx

Operating Expenses:

1. Cash based expenses

2. Expenses relating to receivables
3. Expenses relating to fixed assets
a). Depreciation
b). Loss on disposal of an assets
Cash Based Expenses:

Expenses paid in cash during the year xxx

Less Opening balance of Accrued expenses xxx
Add Closing balance of Accrued expenses xxx
Add Opening balance of prepaid expenses xxx
Less Closing balance of prepaid expenses xxx
xxx
Provision for Doubtful Debts

1. When there is an increase in Provision it will be charged as an expense.

2. When there is a decrease in Provision it will be credited to the expense.

Incomes Based on Cash

Cash received during the year xxx

Less Opening balance of Accrued income xxx
Add Closing balance of Accrued income xxx
Add Opening balance of advance income xxx
Less Closing balance of advance income xxx
xxx

Solved Questions
From the following given information you are required to prepare Income Statement
and Balance Sheet for the year 2007.

Cash Book
Amount Amount
Receipts Payment
Rs. Rs.
Opening balance b/f 1,500 Salaries and wages 2,000
Cash sales 12,000 Rent and rates 800
Received from Debtors 25,000 Electricity bill 500
Loan from brother 10,000 Drawings 15,000
Paid to creditors 24,000
Closing balance c/f 6,200
48,500 48,500
 Debtors Account
Amount Amount
Particulars Particulars
Rs. Rs.
Opening balance b/f 8,000 Cash received from debtors 25,000
Discount allowed 200
Credit sales 22,000 Bad debts 300
Closing balance c/f 4,500
30,000 30,000

Creditors Account
Amount Amount
Particulars Particulars
Rs. Rs.
Cash paid to creditors 24,000 Opening balance 5,500
Discount received 400 Credit purchase 25,000
Closing balance c/f 6,100
30,500 30,500

Statement of Affairs as on opening date

Rupees Rupees
Opening Assets
Furniture 20,000
Stocks 6,000
Debtors 8,000
Cash 1,500 35,500
Opening Liabilities
Creditors 5,500
Owner’s Equity 30,000

Year-end adjustments
Closing stock Rs. 3,200; rent prepaid Rs. 200; salaries owing Rs. 500; and furniture is to
be depreciated @ 10%.

Solution:
Income Statement
For the year ended on year 2007
(Rs.)

Sales (Cash 12,000 + Credit Sale 22,000) 34,000

Less
Cost of goods sold
Opening stock 6,000
+ Credit purchase 25,000
- Closing stock 3,200 27,800
6,200
 Less Expense:
Salaries & Wages (2,000+500) 2,500
Rent & Rates (800-200) 600
Electricity bills 500
Depreciation (20,000*10%) 2,000
Discount allowed 200
Bad Debts 300 (6,100)
+ Discount Received 400
=500/-

Balance Sheet
Amount Amount
Assets Liabilities
Rs. Rs.
Furniture 18,000 Current Asset
Stock 3,200 Creditors 6,100
Debtors 4,500 Salaries owing 500
Rent Prepaid 200 Loan taken from brother 10,000
Cash 6,200
Owner`s Equity
Owner Equity 30,000
+Net profit 500
-Drawing 15,000 15,500

Total 32,100 Total 32,100