Calculation of Profit or Loss under Single Entry System
Subject: Other
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:
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.
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
A trader started business with a capital of Rs.1,00,000 on 1st Baishak 2072. He withdrew Rs.1,000 per month for his private expenses. At the end of the year his position was under:
|
Stock |
60,000 |
Debtors |
10,000 |
|
Furniture |
20,000 |
Cash |
19,000 |
|
Creditors |
15,000 |
Machinery |
40,000 |
|
Investment |
20,000 |
Bank loan |
18,000 |
Adjustments:
10% interest on bank loan for 1 year is to be paid.
Required:
Closing statement of affairs
Statement of profit and loss
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 |
The following information are provided:
|
Machinery |
50,000 |
Bills receivable |
10,000 |
|
Land and Building |
1,20,000 |
Debtors |
30,000 |
|
Furniture |
40,000 |
Bills payable |
25,000 |
|
Creditors |
20,000 |
Cash and bank |
50,000 |
The trader started business on 1st Baishak with a capital of Rs.2,00,000. His drawing during the year was Rs.15,000. Machinery and furniture are depreciated by 10% and bad debts is written of Rs.2,000.
Required:
Statement of affairs to find out closing capital
Statement of profit and loss
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 |
A trader started a business with Bank Balance of Rs.40,000. His financial position at the end of the revealed that:
Cash in hand and bank – Rs.15,000
Drawings for the year – Rs.1,000 (per month)
Sundry debtors – Rs.21,000
Furniture – Rs.11,000
Stock – Rs.9,000
Sundry creditors – Rs.12,000
Bank overdraft – Rs.6,000
Bills receivable – Rs.7,000
Required:
Statement of affairs at the end of the year
Statement of profit and loss
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 |
The following summary of assets and liabilities of a business for the year ending 31st Chaitra, 2069 are as follows:
Sundry creditors – Rs.50,000
Sundry debtors – Rs.90,000
Stock – Rs.30,000
Plant – Rs.50,000
Cash balance – Rs.20,000
The business was started on 1st Baishak, 2069 with capital of Rs.70,000. Drawings during the year were Rs.12,000. Write off bad debts Rs.1,000. Depreciate plant by 10%.
Required:
Closing statement of affairs
Statement of Profit and loss
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 |
Quiz
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