Short Notes — Ch 17 Cash-Based Single Entry System
⚡ Ch 17 — Cash-Based Single Entry System
FAA 2022 = the real Finance Account Assistant paper, 6 Mar 2022 — FAA-2022-paper 2024 = the FAA paper of 28 Jan 2024 — 2024-paper PAA 2020 = the Panchayat Accounts Assistant paper of 10 Nov 2020 — a different post, kept as practice, with the official JKSSB key. Its questions were previously mislabelled "2022" and duplicated under two booklet numberings; de-duplicated 1 Sep 2026. See Four-Paper-Comparison.
PYQ: 3 questions — PAA 2020·Q84, Q107 · 2024·Q43. ⭐ "Statement of affairs" was asked in BOTH papers (PAA 2020·Q90 ≡ 2024·Q43). MCQ bank: 20 questions (Q227–242 · Q442–445).
1️⃣ The core
Single Entry = an incomplete, unscientific system recording only ONE side of most transactions. Also called "accounting from incomplete records".
| Kept properly | Partially / not kept |
|---|---|
| Cash book · Personal accounts (debtors, creditors) | Real & nominal accounts — assets, liabilities, expenses, revenues |
| Point | Answer |
|---|---|
| Used by | ⭐ Sole traders / small firms (not companies) |
| Nature | unscientific, unsystematic, incomplete |
| Records | mostly the personal aspect |
| Accepted by tax authorities? | ❌ No |
| It is the foundation of | cash-basis accounting |
2️⃣ ⭐ Statement of Affairs — the repeat question
Statement of Affairs = a balance-sheet-like statement of assets and liabilities, prepared to find CAPITAL as the balancing figure.
| Statement of Affairs | Balance Sheet |
|---|---|
| Prepared under single entry | Prepared under double entry |
| Figures from estimates, documents, physical count | Figures from ledger balances |
| Purpose: find capital | Purpose: show financial position |
| Not fully reliable | Reliable, true & fair |
⭐ Capital = Assets − Liabilities (the balancing figure) Opening Statement of Affairs → gives opening capital · Closing one → gives closing capital.
3️⃣ ⭐⭐ The profit formula — learn this cold
Profit = (Closing Capital + Drawings) − (Opening Capital + Additional Capital)
Or laid out as the exam shows it:
| Statement of Profit or Loss | ₹ |
|---|---|
| Capital at the END of the year | xxx |
| Add: Drawings during the year | xxx |
| Less: Additional capital introduced | (xxx) |
| Less: Capital at the BEGINNING | (xxx) |
| = Profit / (Loss) for the year | xxx |
Worked example (MCQ Q445)
Opening capital ₹10,000 · Drawings ₹6,000 · Profit ₹2,000 · Additional capital ₹3,000 → Closing capital?
Closing = Opening − Drawings + Profit + Additional = 10,000 − 6,000 + 2,000 + 3,000 = ₹9,000 ✓
Worked example (MCQ Q234)
Opening ₹60,000 · Drawings ₹5,000 · Capital introduced ₹10,000 · Closing ₹75,000 → Profit? = (75,000 + 5,000) − (60,000 + 10,000) = ₹10,000
Drawings reduced the capital, so add them back. Fresh capital increased it without being profit, so subtract it. What's left is genuine profit.
4️⃣ ⭐ Finding missing figures
| To find | Prepare |
|---|---|
| ⭐ Credit SALES | Total DEBTORS Account |
| Credit PURCHASES | Total CREDITORS Account |
| Closing cash balance | Cash Book / Receipts & Payments |
| Opening capital | Opening Statement of Affairs |
The two methods of ascertaining profit
- ⭐ Statement of Affairs method (a.k.a. Net Worth method) — compare opening and closing capital
- Conversion method — convert incomplete records into full double entry, then prepare Trading, P&L and Balance Sheet
What cannot be prepared under single entry: a Trial Balance (so arithmetical accuracy can never be verified).
5️⃣ 🎯 PYQs from this chapter
Related: 2024·Q51 — single entry is used by sole traders (covered in SN-3-Basic-Accounting-Concepts).
PAA 2020 · Q84 — Which account is generally used in single entry and in Complete records to obtain the amount of credit sales Made during an accounting period?
a) Accounts Payable Account · b) Total Revenue Account · c) Debtors Account · d) Stocks Account → Ans: C In incomplete records, the Debtors A/c is used to derive credit sales.
⭐ From the REAL FAA 2022 paper (6 Mar 2022) — added 1 Sep 2026. See FAA-2022-paper.
FAA 2022 · Q55 — Opening capital ₹80,000, closing capital ₹1,00,000. Profit or loss?
a) profit 1,00,000 b) loss 1,00,000 c) profit 20,000 d) loss 20,000 → Ans: C Statement-of-affairs method: Profit = Closing capital − Opening capital + Drawings − Fresh capital.
⭐ 2024 · Q43 ≡ PAA 2020 · Q90 — asked in BOTH papers
Statement of financial position produced from incomplete accounting records is commonly known as a) Balance sheet · b) Statement of affairs · c) Statement of financial operations · d) Cash flow statement → Ans: B A balance sheet comes from complete double-entry records; a statement of affairs is its estimate from incomplete ones.
6️⃣ High-frequency MCQ traps
| MCQ | Point |
|---|---|
| Q227 | Closing capital formula |
| Q229 / Q230 | Creditors A/c → credit purchases · Debtors A/c → credit sales |
| Q231 | Closing cash balance → from the cash book |
| Q233 | Opening capital → from the opening Statement of Affairs |
| Q234 / Q240 | Plug into the profit formula |
| Q235 / Q223 | Single entry records mostly the personal aspect / one aspect |
| Q237 / Q238 | Single entry → Statement of Affairs · Double entry → Balance Sheet |
| Q239 | Profit = closing − opening, adjusted for drawings & fresh capital |
| Q241 | ⭐ A Trial Balance cannot be prepared under single entry |
| Q254 | Incomplete records are unscientific / unsystematic |
| Q444 | ⚠️ It is NOT suitable for all types of organisations |
| Q226 | Double entry gives a true and fair view |
7️⃣ If you remember nothing else
Single entry = incomplete, unscientific, used by SOLE TRADERS, not accepted by tax authorities · Statement of Affairs = assets − liabilities → CAPITAL as the balancing figure · Profit = (Closing Capital + Drawings) − (Opening Capital + Additional Capital) · Debtors A/c → credit sales · Creditors A/c → credit purchases · Trial Balance CANNOT be prepared · Net Worth method = Statement of Affairs method
🔗 Related
- Full notes: L-17-CASH BASED SINGLE ENTRY SYSTEM OF ACCOUNTING · MCQs Q227–242, Q442–445 in MCQs
- Prev: SN-16-Partnership-Accounts · Next: SN-18-Financial-Management
