Unit- 2
Accounting of Non Trading Organization and Single Entry System
Q1) Distinguish Between the following:-
Receipt and Payment A/c v/s Income and Expenditure A/c
A1)
Receipt and Payment A/c is a summary of Cash transactions while Income and Expenditure A/c is a ledger showing incomes and expenditures for the accounting period.
Receipt and Payment A/c must necessarily commence with the opening balance of Cash brought down from the preceding period, if any whereas Income and Expenditure A/c does not commence with any balance.
Receipt and Payment A/c may include receipts and payments pertaining to preceding or succeeding period. On the other hand, Income and Expenditure A/c just like Profit and Loss A/c, includes incomes and expenses only for the current year.
Receipt and Payment A/c includes both capital and revenue receipts & payments. While Income and Expenditure A/c contains Incomes and Expenses of only revenue in nature.
In Receipt and Payment A/c, the Receipts are shown on the debit side and Payments on the credit side. On the other hand, in Income and Expenditure A/c, all Revenue Incomes appear on the credit side and Expenditure on the debit side.
The difference between the receipts and the payments side of Receipt and Payment A/c represents the balance of Cash in Hand or at Bank at the closing date. While the difference of Income and expenditure side of Income and Expenditure A/c represents either Surplus or Deficit that is, either Profit or Loss.
A Receipts and Payments A/c need not necessarily be accompanied by a Balance Sheet whereas an Income and Expenditure account must be accompanied by a Balance Sheet for the period concerned.
The balance of Receipts and Payments A/c is carried to the next period.
On the other hand, the balance of Income and expenditure A/c is not carried to the next period, but it is added in or deducted from the accumulated capital fund.
Q2) What do you mean by a ‘Not for Profit’ Concern?
A2)
Non-Trading Organisations, also known as Not for Profit Organisations (NPO) are such entities that do not have Profit motive.
Such organisations work for the benefits of its members or for common public.
These concerns focus on providing best possible services to the mankind.
They collect very less charges for their services, sometimes they work for free.
NPOs collect funds from Government or their agencies.
They receive income in form of Government Subsidies, Concessions and Donations. Sometimes, they also collect the amounts from the members in form of Subscriptions, Entrance Fees, Admission Fees, etc.
NPOs are formed to promote art, education, religion, health, etc.
Q3) What is Single Entry System of Accounting?
A3)
The system of book keeping in which only Cash A/c and various Personal A/c are prepared, is known as Single Entry System of Book Keeping.
In this system, Real Accounts and Nominal Accounts are not prepared. Only Cash A/c and accounts of Debtors and Creditors are prepared.
Many small business entities don’t find time to prepare a full set of accounting system under Double Entry System of Book Keeping. They record partial books of accounts to find out the financial position of the business.
Q4) What are the limitations of Single Entry System?
A4)
Unscientific:
The Single Entry System is unscientific system of recording financial statements.
It does not have fixed set of rules for recording and reporting the financial transactions.
Incomplete:
This is incomplete system because it does not record two aspects of a business transaction. It does not record any record related to Nominal A/c or Real A/c except Cash A/c.
Does not reflect true profit or loss:
Since Nominal Accounts are not recorded in the books under Single Entry System, it does not reflect true profit – loss position of the business.
Does not reflect true financial position:
Under Single Entry System, Real accounts except cash book are not maintained. Therefore, it cannot reveal the true financial position of the business.
Possibility of frauds:
As discussed above, Single Entry System is Incomplete and Unscientific, there is always a possibility of frauds being committed in the books of accounts.
Unacceptable for Tax purposes:
The Tax Department of our country does not accept such books of accounts for the purpose of tax assessment, which are recorded under Single Entry System. This is so because, books kept under this system are considered as incomplete.
Q5) Distinguish Between the following:-
Single Entry System vs Double Entry System
OR How does Single Entry System differ from Double Entry System of Accounting?
A5)
Single Entry System is an incomplete system of recording financial transactions. Whereas Double Entry System records financial transactions in totality that is completely.
Under Single Entry System, only single aspect of each transaction is recorded.
While in Double Entry System, dual aspects are recorded that is, debit and credit aspect.
Only Personal Accounts are recorded in Single Entry System and Cash Book is prepared. In Double Entry System, the books are recorded scientifically and completely and hence all Real, Personal and Nominal Accounts are prepared.
In Single Entry System, true profit or loss cannot be ascertained because Nominal Accounts are not prepared. On the other hand, Double Entry System reveals the profit or loss figure from the financial statements.
Single Entry System is suitable to adopt only by small entrepreneurs like a sole proprietary business. Double Entry System is not only suitable but also compulsory to adopt by other forms of business organisations.
Books recorded under Single Entry System are considered invalid while assessing tax liabilities, whereas financial records as per Double Entry System are valid to produce at the disposal of Income Tax authorities.
Q6) The Green Valley School, Lonawala has presented the following information and with this you are required to prepare.
i) Income and Expenditure A/c for the year ending 31.03.2010.
Ii) Balance Sheet as on 31.03.2010.
Balance Sheet as on 31.03.2009
Liabilities | Amount | Assets | Amount |
Capital Fund | 6,54,000 | Cash in hand Cash in bank Building Furniture Books Fixed Deposit | 4,500 9,500 5,00,000 60,000 30,000 50,000 |
| 6,54,000 |
| 6,54,000 |
Dr. Receipts and Payments Accounts for the year ending 31.03.2010 Cr.
Receipts | Amount | Amount | Payments | Amount | Amount |
To Balance b/d Cash in hand Cash in bank To Tuition Fees To Fine collection To Admission Fees To Donation (to be capitalized) To Interest received To Government Grant (Revenue) |
|
4,500 9,500 85,000 2,600 10,000 50,000
2,500 1,00,000 | By Salary paid By Books By Stationery and Printing By Office Rent By Repairs and Maintenance By Sports Expenses By Annual Gathering Expenses By Furniture By Balance C/d Cash in hand Cash in bank |
| 1,05,000 10,000 20,500
5,000 12,000
4,300 7,000
40,000
1,300 59,000 |
|
| 2,64,100 |
|
| 2,64,100 |
Additional Information:
1. Outstanding Tuition Fees Rs.12,000.
2. Outstanding Salaries Rs.6,000
3. Depreciate Books by Rs.6,500 and Furniture by Rs.7,000
A6)
In the books of Green Valley School, Lonawala
Dr. Income and Expenditure Account for the year ending 31.03.2010 Cr.
Expenditure | Amount | Amount | Income | Amount | Amount |
To Salaries Paid Add: Outstanding
To stationary and Printing To Office Rent To Repairs and maintenance To Sports Expenses To Annual Gathering Expenses To Depreciation On books On Furniture
To Excess of Income over Expenditure (i.e Surplus) | 1,05,000 6,000
6,500 7,000 |
1,11,000 20,500
5,000 12,000
4,300
7,000
13,500
38,800 | By Tuition Fees Add: Outstanding By Fine Collection By Admission Fees By Interest received By Government Grant | 85,000 12,000 |
97,000 2,600 10,000 2,500 1,00,000
|
|
| 2,12,100 |
|
| 2,12,100 |
Balance sheet as on 31.03.2010
Liabilities | Amount | Amount | Assets | Amount | Amount |
Capital Fund Add: i)Donations Ii)Surplus Outstanding Salary | 6,54,000 50,000 38,800 |
7,42,800 6,000 | Building Furniture Add: Purchased
Less: Depreciation
Books Add: Purchased Less: Depreciation
Fixed Deposit Cash in hand Cash in Bank Outstanding Tuition Fees |
60,000 40,000 1,00,000 7,000
30,000 10,000 40,000 6,500
| 5,00,000
93,000
33,500 50,000 1,300 59,000 12,000 |
|
| 7,48,800 |
|
| 7,48,800 |
Q7)
Following is the Receipts and Payment Accounts and additional information of Jeevandeep Hospital ,Pune. Prepare Income and Expenditure Account for the year ending 31.03.3013 and the Balance Sheet as on that date.
Dr. Receipts and Payments Accounts for the year ending 31.03.2010 Cr.
Receipts | Amount | Amount | Payments | Amount | Amount |
To Balance b/d To Subscription 2011-2012 2012-2013 2013-2014 To Donation To Life Membership Fees To Hospital receipt (revenue) |
15,000 1,90,000 30,000 | 12,000
2,35,000 1,10,000 50,000
3,00,000
| By Medicines By Honorarium Doctors By Ambulance Maintenance By Hospital Equipment Purchased By Furniture By Fixed Deposit By Balance c/d |
| 20,000 1,50,000 88,000
60,000
50,000 2,00,000 1,39,000 |
|
| 7,07,000 |
|
| 7,07,000 |
Additional Information:
- Outstanding subscription for 2012-2013 is Rs.10,000.
- Hospital Equipment and Furniture were purchased on 01.10.2012 and both the assets were to be depreciation @ 20% p.a.
- Life Membership Fees are to be capitalized.
- Donations represent donation for Building fund.
- Staff Salary for Current year is outstanding Rs.15,000
- On 01.04.2012 the hospital had the following Assets and Liabilities Land Rs.5,00,000,Investment Rs. 1,00,000 Bank Loan Rs.4,00,000, Ambulance Rs.2,05,000.
- Capital Fund as on 01.04.2015 was Rs.4,32,000.
A7)
In the book of Jeevandeep Hospital,Pune .
Dr. Income and Expenditure Account for the year ending 31.03.2013 Cr.
Expenditure | Amount | Amount | Income | Amount | Amount |
To Medicines To Honararium to Doctors To Ambulance Maintence To Depreciation on Hospital Equipment Furniture To Staff salary Outstanding To Exess of Income over Expenditure (Surplus) |
6,000 5,000
| 20,000
1,50,000
88,000
11,000 15,000
2,16,000 | By Subscription Add: Outstanding Subscription By Hospital Receipts | 1,90,000
10,000 |
2,00,000 3,00,000 |
|
| 5,00,000 |
|
| 5,00,000 |
Balance sheet as on 31.03.2010
Liabilities | Amount | Amount | Assets | Amount | Amount |
Capital Fund Add: Life Membership Fees Add: Surplus Bank Loan Subscription received In advance (2013-2014) Building Fund (Donation) Outstanding Staff Salary | 4,32,000 50,000 2,16,000 |
6,98,000
4,00,000 30,000 1,10,000 15,000
| Land Investment Cash in hand Fixed Deposit Ambulance Hospital Equipment Less: Depreciation @20%p.a.for 6months Furniture Less: Depreciation @20%p.a. For 6 months Outstanding Subscription |
60,000 6,000
50,000
5,000 | 5,00,000 1,00,000 1,39,000 2,00,000 2,05,000
54,000
45,000 10,000 |
|
| 12,53,000 |
|
| 12,53,000 |
SINGLE ENTRY
Q8) Mrs. Shradddha has not kept proper books of Accounts following information is provided to you.
Particulars | 31-03-2012 | 31-03-2013 |
Machinery Furniture Debtors Creditors Stock Outstanding Expenses Prepaid Expenses Cash in Hand Cash at Bank | 50,000 50,000 18,000 18,000 30,000 1,500 - 3,000 25,000
| 50,000 30,000 25,000 20,000 42,000 - 500 5,000 35,000 |
ADDITIONAL INFORMATION:
1) Mrs. Shraddha introduced additional capital as on 1st October, 2012 by selling her personal car Rs.10,000.
2) She paid her daughter’s College fees from business Bank account Rs.3,000.
3) Depreciate Machinery by 5% p.a.
4) Provide 2% on Debtors for Bad and Doubtful Debts.
5) Interest on Capital is to be provided @5%p.a. And on Drawings @5%p.a.
Prepare Statement of Profit or Loss for the year ended 31t March, 2013.
A1)
Statement of Affairs of Mrs. Shraddha as on
LIABILITES | 31.03.2012 | 31.03.2013 | Assets | 31.03.2012 | 31.03.2013 |
Creditors Outstanding Expenses Capital (Bal. Fig.) | 18,000 1,500
1,56,500 | 20,000 -
1,67,500 | Machinery Furniture Debtors Stock Prepaid Expenses Cash in Hand Cash at Bank | 50,000 50,000 18,000 30,000 -
3,000 25,000 | 50,000 30,000 25,000 42,000 500
5,000 35,000 |
| 1,76,000 | 1,87,500 |
| 1,76,000 | 1,87,500 |
Statement of Profit or Loss of Mrs. Shraddha for the year ended 31st March, 2013
Particulars | Amount | Amount |
Capital as on 31st March,2013 Add: Drawings during the year
Less: Additional capital introduced as on 1st October,2012 ADJUSTMENT CLOSING CAPITAL Less: Capital as on 31st March,2012 PROFIT BEFORE ADJUSTMENT Add: Interest on drawings (5% on 3,000 for 6 months) (Note1) Less: Depreciation on Machinery (5% on 50,000) Provision for bad and doubtful debts (2% on 25,000) Interest on capital 5% on Rs.1,56,500 7,825 5% on Rs.10,000 for 6 months 250 |
2,500 500
8,075 | 1,67,500 3,000 1,70,500 10,000 1,60,500 1,56,500 4,000 75 4,075
11,075 |
NET LOSS FOR THE YEAR |
| 7,000 |
Note 1: As the date of drawings is not given, interest on drawings is calculated for 6 months only.
Q9) Mr. Prakash keeps his books in Single Entry System on 1st April 2011 his position was as follows
Creditors Rs.40,000 Cash at Bank Rs.44,000 Cash in Hand Rs.1,000 Debtors Rs.98,000 Stock Rs.24,000 Machinery Rs.90,000. He had withdrawn Rs.1,000 every month for his personal expenses. He introduced Rs.50,000 as an additional Capital on 1st August 2011. He purchased additional Machinery for business worth Rs.50,000 on 1st October 2011.
AJUSTMENTS:
1) Depreciate Machinery @10% p.a.
2) Provide R.D.D. @ 2.5% on debtors.
You are required to prepare Statement of Profit and Loss.
A2) Statement of Affairs as on
Liabilities | 1-04-2011 | 31-03-2012 | Assets | 1-04-2011 | 31-03-2012 |
Creditors Capital (Bal. Fig.) | 40,000 1,21,600 | 70,000 1,87,000 | Cash in Hand Cash at Bank Debtors Stock Machinery | 600 21,000 80,000 20,000 40,000 | 1,000 44,000 98,000 24,000 90,000 |
| 1,61,600 | 2,57,000 |
| 1,61,600 | 2,57,000 |
Statement of Profit and Loss for the year ended 31st March, 2012
Particulars | Amount | Amount |
Capital as on 31st March, 2012 Add: Drawings during the year
Less: Additional Capital brought during the year Less: Capital as on 1st April, 2011 PROFIT BEFORE ADJUSTMENT Less: Depreciation on Machinery 10% on Rs.40,000 10% on 50,000 for 6 months R.D.D. 2.5% on Rs.98,000 |
4,000 2,500 2,450 | 1,87,000 12,000 1,99,000 50,000 1,49,000 1,21,600
8,950 |
NET PROFIT DURING THE YEAR |
| 18,450 |
