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Single entry system of book keeping is Unscientific.

Single entry system of book keeping is systematic.

Generally accounts under single entry system are maintained by sole trader.

Difference between Trading Account and Profit & Loss Account:

Generally accounts under single entry system are maintained by Sole Trader.

Identify the current asset from the Cash at bank.

The current assets from the Inventories.

Land is Fixed asset.

Deferred Revenue Expenditure is the expenditure of revenue nature which gives benefits for more than one accounting period e. g. heavy advertisement expenditure on launching a new product is likely to give benefit for more than one accounting period. 

Example: Heavy expenditure on advertisement for launching a new product whose benefits will be available for over a period of one year.

Land is Fixed asset.

Wages and Salaries appearing in Trial Balance is shown on the debit side of Trading A/c.

Fixed Installment Method of charging Depreciation:

(i) Under this method the amount of depreciation remains constant from year to year.

(ii) The original cost of the asset is reduced to zero at the end of its useful life.

(iii) This method is suitable for those assets whose useful life can be estimated accurately and where the use of the asset is constant from year to year.

Wages and Salaries appearing in Trial Balance is shown On the debit side of trading A/c.

Excess of credit in Profit and Loss account is called Net profit.

Excess of credit in Profit and Loss account is called Net profit.

Examples of Revenue Expenditure:

(i) Payment of Expenses

(ii) Depreciation charged of fixed assets

(iii) Maintenance Expenditure like repairs, white washing etc.

Balance sheet shows both assets & Liabilities.

Balance sheet is prepared On a particular date.

Trading and Profit and Loss Account is prepared For a particular period.

Any two of the following limitations:

(i) A Trial Balance can’t be prepared and accuracy of accounts can’t be assured.

(ii) Correct ascertainment and evaluation of financial results of business operations can’t be made.

(iii) The owners face great difficulty in filing insurance claims.

(iv) It becomes difficult to convince the ‘Income Tax Authorities’ about the reliability of the computed income.

Final Accounts are prepared at the end of accounting year.

Credit balance of Cash Book implies unfavourable balance. It is called Bank Overdraft.

Balance Sheet is prepared On a particular date.

Balance sheet shows Financial position.

Trading and Profit & Loss Account is prepared At the end of accounting year.

Bank Reconciliation Statement: This statement is prepared to reconcile the difference in bank balance as shown by Cash Book and Pass Book.

Balance sheet shows Financial position.

Bill of Exchange:

A bill of exchange is an instrument in writing drawn by the creditor upon his debtor containing an unconditional order to pay a certain sum of money on a certain date to a certain person or to his order or to the bearer of the instrument for the value received.

Trading Account shows Gross profit.

The purpose of preparing final accounts is to ascertain Profit or loss and financial position.

Debit balance of Cash Book means Favourable balance.

Bank Reconciliation Statement is prepared by the Businessman.

No, Closing will not be transferred to Trading Account because it already stands credited to Trading Account as adjusted purchases mean Opening Stock + Purchases – Closing Stock.

The amount in the ‘Adjusted Purchases Account’ is shown on the debit side of the Trading Account and the amount of closing stock on the assets side of the Balance Sheet.

Amortisation is writing of Patents and Copyrights.

Following are the four disadvantages of singly entry system

a. Preparation of Trial balance is not possible

b. True profit or loss cannot be ascertained

c. Difficulty in preparing balance sheet

d. No control on assets

Decline in the value of fixed intangible assets is called Depreciation.

a. Helpful in the purchase and sale of goods on credit – A bill of exchange serves as a written evidences of debt. It is a proof that the purchaser of goods owes the amount written in it.

b. Legal Document – It is a valid document in the eyes of law. If the drawee fails to make its payment, it would be easier to recover the amount legally in comparison to a verbal promise.

c. Relief from sending reminders: - The seller need not approach the purchase time and again to demand the payment because the date of payment is fixed and written on the bill of exchange

d. Endorsement possible – A bill of exchange can be easily transferred from one person to another in settlement of debts as it is a negotiable instrument

(a) Dishonour of a bill – When the accepter of the bill refuse to pay the amount of the bill on the date of maturity or becomes insolvent, it is called dishonor of the bill

(b) Noting changes – To establish the fact that the bill was properly presented and dishonored, the bill is usually handed over to person called ‘Notary public’ The notary public charges a small fee for the services rendered by him, which is called ‘Noting changes’

(c) Discounting of bill – Discounting means encashing the bill before the date of its maturity or borrowing from the bank on the security of the bill. Bank deducts a certain amount of discount from the face value of the bill and pays the balance to the person discounting the bill.

Capital Expenditure maintains the earning capacity.

Bill of Exchange:

A bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument for value received. 

Any two of the following characteristics of bill of exchange:

(i) It is a written document.

(ii) It is drawn by the creditor upon his debtor.

(iii) It contains an unconditional order to pay.

(iv)The amount payable mentioned in it is certain.

(v) It requires acceptance by the debtor (drawee) or someone else on behalf of the debtor.

(vi) It is a negotiable instrument and its ownership can be transferred by endorsement and delivery.

(vii) It must be dated and stamped as per the provisions of the Indian Stamps Act.

(viii) It must be duly presented by its holder to the acceptor on the date of maturity during business hours.

Sales Rs.1,00,000 , Purchases Rs.50,000

Sales Return Rs.5,000 , Purchase Return Rs. 8,000

Net Sales = Sales – Sales Return

= 1,00,000 – 5,000

= 95,000

Net Purchases = Purchases – Purchase Return

= 50,000 – 8,000

= 42,000

(a) ) Dishonour of a bill – When the accepter of the bill refuses to pay the amount of the bill on the date of maturity or becomes insolvent, it is called dishonour of the bill.

(b) Noting charges – To establish the fact that the bill was properly presented and dishonored, the bill is usually handed over to a person called ‘Notary public’ The notary public charges a small fee for the services rendered by him, which is called ‘Noting charges’.

(c) Discounting of bill – Discounting means encashing the bill before the d) ate of its maturity or borrowing from the bank on the security of the bill. Bank deducts a certain amount of discount from the face value of the bill

(d) Endorsement of bill of exchange- Endorsement of bill of exchange means transferring the ownership of bill of exchange by its holder in favour of his creditor. Since a bill of exchange is a negotiable instrument, its ownership can be transferred by endorsement. Endorsement is done by writing at the back of the bill of exchange the name of the person in whose favour the ownership is being transferred and it is signed by the holder.

Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses - Closing Stock

= 75,000 + 8,000

= 83,000

OR

Cost of Goods Sold = Net Sales – Gross Profit

= 1,25,000 – 42,000

= 83,000

Issue of bonus shares 

Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company. There are some conditions which need to be satisfied before issuing Bonus shares: 

1. Bonus shares can be issued by a company only if the Articles of Association of the company authorizes a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company.

2. It must be sanctioned by shareholders in general meeting on recommendations of BOD of company. 

3. Guidelines issue by SEBI must be complied with. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained.

Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued since the shareholders become liable to pay the uncalled amount on those shares. 

It is important to note here that Issue of bonus shares does not entail release of company’s assets. When bonus shares are issued/credited as fully paid up out of capitalized accumulated profits, there is distribution of capitalized accumulated profits but such distribution does not entail release of assets of the company.

Issue of Bonus Shares by Public Sector Undertakings

It has come to the notice of the Government that a number of Central Government Public Sector Undertakings are carrying substantial reserves in their balance sheets against a relatively small paid up capital base. The question of the need for these enterprises to capitalize a portion of their reserves by issuing Bonus Shares to the existing shareholders has been under consideration of the Government. The issue of Bonus Shares helps in bringing about at proper balance between paid up capital and accumulated reserves, elicit good public response to equity issues of the public enterprises and helps in improving the market image of the company.

Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

Goodwill is a long-term (or noncurrent) asset categorised as an intangible asset. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets can be identified, and the liabilities obtained in the purchase.

Following are the objectives of preparing financial statements:

a. To determine the net profit or net loss

b. Ascertaining financial position

c. Comparison with previous year

d. Calculating Accounting Ratios

e. Maintaining Reserves or any other Objective

Out of the following which is the cause of Depreciation Market Value.

Depreciation is charged on Fixed Assets.

Depreciation: Decrease in the value of a fixed asset due to use, Passage of time, obsolescence and accidents is called depreciation. 

Causes of Depreciation:

(i) Because of use, Wear and tear of the asset takes place that results into depreciation.

(ii) Even than an asset may not be used its value may decreases because of passage of time.

(iii) The development of new technology makes the assets with old technology obsolete and the same may results into depreciation.

(iv) Accidents may reduce the value of asset.