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·A = the Panchayat Accounts Assistant paper of 10 Nov 2020 — a different post, kept as practice. These were previously mislabelled "2022"; see Four-Paper-Comparison.
PYQ: 3 questions — 2022·Q100, Q107 · 2024·Q43. ⭐ "Statement of affairs" was asked in BOTH papers (2022·Q107 ≡ 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
⭐ 2024 · Q43 ≡ PAA 2020·A · Q107 (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
PAA 2020·A · Q100 — Which account is generally used in single entry / incomplete records to obtain the amount of credit sales?
a) Accounts Payable A/c b) Total Revenue A/c c) Debtors Account d) Stock A/c → Ans: C The Total Debtors A/c is balanced and credit sales is the missing figure.
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.
PAA 2020 · Q90 — Statement of financial position produced from incomplete accounting record is commonly known as
a) Balance sheet · b) Statement of affairs · c) Statement of financial operations · d) Cash flow statement → Ans: B ⭐ THIRD appearance — also 2022·Q107 and 2024·Q43, identical wording.
⭐ 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.
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
