1. Meaning
A system where accounting records are not strictly maintained according to double entry principles. Also known as Single Entry System.
- Usually maintained by small traders.
- Only Personal Accounts and Cash Book are maintained.
- Nominal and Real accounts are often ignored.
2. Ascertainment of Profit/Loss
Since Trading and P&L account cannot be prepared (lack of data), Profit is calculated by comparing Capital at the beginning and end of the period.
Formula:
Profit = Closing Capital + Drawings - Additional Capital - Opening Capital
Profit = Closing Capital + Drawings - Additional Capital - Opening Capital
3. Statement of Affairs
A statement prepared to calculate Capital (Opening or Closing) when it is not given.
Capital = Total Assets - Total Liabilities
| Basis | Balance Sheet | Statement of Affairs |
|---|---|---|
| Source | Ledger Balances | Estimates / Memory |
| Objective | Financial Position | Finding Capital |
| Reliability | High | Low |