Calculation of Profit or Loss under Single Entry System

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Overview

Statement of affairs is a statement of capital, liabilities and assets. It is prepared under the single entry system in order to find out the amount of opening or closing capital of the business. This note has information about the calculation of profit or loss under single entry system.
Calculation of Profit or Loss under Single Entry System

The following method is used for the calculation of profit or loss under single entry system:

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Net worth method

Net worth method is also called the statement of affairs method or capital comparison method. According to this method, profit or loss of the business is determined by making a comparison between the capitals of two dates of a period.

If there are other capital related items such as drawing, additional capital, interest on capital etc. are to be adjusted to ascertain the amount of profit or loss. These items include:

  • Drawing
    If the drawing is made during the year, it should be added to the amount of closing capital.
  • Additional capital
    If additional capital is introduced in the business during the year, it should be deducted from the amount of closing capital.
  • Interest on capital
    If the interest is provided on capital, it should be deducted from the amount of closing capital.

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Statement of Affairs

Statement of affairs is a statement of capital, liabilities and assets. It is prepared under the single entry system in order to find out the amount of opening or closing capital of the business. For the purpose of determining the amount of opening capital, the statement of affairs is prepared on the opening date. It is prepared on the closing date for the purpose of determining the amount of closing capital.

Preparation of Statement of Affairs

Statement of affairs is prepared as a balance sheet. All the liabilities are shown on the left-hand side and all the assets are shown on the right-hand side. The difference between the total assets total liabilities is considered as the amount of capital.

Treatment of adjustments in single entry system

If additional information or the adjustments are given, they should be adjusted for calculating profit or loss of the business. Mainly, additional capital and the drawings are to be adjusted in the statement of profit or loss. Other additional adjustments can be adjusted either in the closing statement of affairs or in the statement of profit or loss.

Things to remember
  • Statement of affairs is a statement of capital, liabilities and assets. It is prepared under the single entry system in order to find out the amount of opening or closing capital of the business. 
  • According to net worth method, profit or loss of the business is determined by making comparison between the capitals of two dates of a period.
  • Statement of affairs is prepared as balance sheet.
  • The difference between the total assets total liabilities is considered as the amount of capital.
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
Videos for Calculation of Profit or Loss under Single Entry System
Single Entry System
Questions and Answers

Solution:

Statement of affairs

As on 31st Chaitra 2071

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Creditors

15,000

Stock

60,000

Bank loan

18,000

Debtors

10,000

Outstanding interest on bank loan

1,800

Cash

19,000

Capital

1,34,200

Investment

20,000

Furniture

20,000

Machinery

40,000

1,69,000

1,69,000

Statement of Profit and loss

Particulars

Amount (in Rs.)

Capital as on 31st Chaitra 2072 (closing capital)

1,34,000

Add: Drawing during the year

12,000

1,46,000

Less: Opening capital

1,00,000

Net profit for the year

46,200

Solution:

Statement of Affairs

At the end of Chaitra

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Capital (Balancing figure)

2,44,000

Machinery

50,000

Bills payable

25,000

Less: Depreciation

5,000

45,000

Creditors

20,000

Land and building

1,20,000

Furniture

40,000

Less: Depreciation

4,000

36,000

Bills receivable

10,000

Debtors

30,000

Less: Bad debts

2,000

28,000

Cash and Bank

50,000

2,89,000

2,89,000

Statement of Profit and loss

Particulars

Amount (in Rs.)

Closing capital

2,44,000

Add: Drawing during the year

15,000

2,59,000

Less: Opening capital

2,00,000

Net profit for the year

59,000

Solution:

Statement of affairs at the end of the year

Liabilities

Amount

Assets

Amount

Sundry creditors

12,000

Cash and bank

15,000

Bank overdraft

6,000

Sundry debtors

21,000

Capital

45,000

Furniture

11,000

Stock

9,000

Bills receivable

7,000

63,000

63,000

Statement of profit and loss

Particulars

Amount (in Rs.)

Closing capital

45,000

Add: Drawings

12,000

Net profit for the year

57,000

Solution:

Statement of Affairs

As on 31st Chaitra, 2059

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Sundry creditors

50,000

Sundry debtors

90,000

Capital (balancing figure)

1,34,000

Less: bad debts

1,000

89,000

Stock

30,000

Plant

50,000

Less: depreciation

5000

45,000

Cash balance

20,000

1,84,000

1,84,000

Statement of Profit and loss

Particulars

Amount (in Rs.)

Closing capital

1,34,000

Add: Drawing during the year

12,000

Net profit for the year

1,46,000

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