Single Entry and Construction of Financial

Statements from Incomplete Records

Learning Objectives:
1. To understand the concept of single entry system in contrast to double
entry system.
2. To identify the records kept under a single entry.
3. To determine net income using the single entry method.
4. To prepare financial statements based on single entry method.

By:
Mr. Remark M. Montalban
Holy Name University

1
Characteristics of Single Entry
 Records maintained are the important records representing the
day-to-day transactions of the business.
 The major record usually is the cash book, showing the cash
receipts and cash disbursements, no particular debit or credit
accounts, only descriptions.
 Balances of receivables and payables are made only from the
list of customers and creditors with their corresponding
balances.
 Journal voucher summary are also maintained for other
expenses not involving cash such as depreciation, bad debts,
and other non cash expenses.

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Characteristics of Single Entry
 Usually maintained by micro and small enterprises.
 No specific rules are followed; thus, the preparation
may vary from business-to-business.

 Methods of Single Entry

1) Net worth method, net assets approach or capital
maintenance approach. Others call this method as
Statement of Affairs Method
2) Conversion method

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Net Assets Approach
Proprietorship or partnership
Capital, end of the year xx
Add: Withdrawals xx
Total xx
Less: Capital, beginning of the year xx
Additional Investments xx xx
Net Income (Loss) xx

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Illustration No. 1
An entity provided the following data for the current year:
January 1 December 31

Total Assets 2,000,000 3,000,000

Total liabilities 1,200,000 1,800,000

Additional Investments 600,000

Withdrawals 900,000

Solution:
Capital, ending (3M – 1.8M) 1,200,000
Withdrawals 900,000
Additional Investments ( 600,000)
Capital, beg. (2M – 1.2M) ( 800,000)
Net Income 700,000
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Net Assets Approach
Corporation
Retained earnings, end xx
Add: Dividends declared or paid xx
Other items that decreased RE not P/L xx xx
Total xx
Less: Retained earnings, beginning xx
Other items that increased RE not P/L xx xx
Net Income (Loss) xx

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Illustration No. 2
An entity provided the following data for the current year:
Retained earnings, Dec 31 4,000,000
Retained earnings, Jan 1 4,500,000

During the current year, the entity issued share capital with par value of P2,000,00 and
fair value of P2,500,000 as 10% share dividend. At the end of the year, the entity
declared as cash dividend of P3,000,00

Solution:
Retained Earnings, ending 4,000,000
Share dividend 2,500,000
Cash dividend 3,000,000
Retained Earnings, ending (4,500,000)
Net Income 5,000,000

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Net Assets Approach
Corporation
Net increase in net assets xx
Add: Dividends declared or paid xx
Other items that decreased NA not P/L xx xx
Total xx
Less: Increase in Share Capital & Premium xx
Other items that increased NA not P/L xx xx
Net Income (Loss) xx

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Illustration No. 3
An entity reported the following changes in account balances during the
current year: Increase (Decrease)
Cash 1,500,000
Accounts Receivable 500,000
Merchandise Inventory 2,000,000
Prepaid expenses ( 100,000)
Land 5,000,000
Accounts payable (1,100,000)
Bonds payable 4,000,000
Share capital 4,000,000
Share premium 1,000,000

Dividend of P1,500,000 was paid during the year and that not other
transactions affected the retained earnings.

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Illustration No. 3 - Solution
Analysis: Determine the impact to net assets

Cash 1,500,000 1,500,000

Accounts Receivable 500,000 500,000
Merchandise Inventory 2,000,000 2,000,000
Prepaid expenses ( 100,000) ( 100,000)
Land 5,000,000 5,000,000
Accounts payable (1,100,000) 1,100,000
Bonds payable 4,000,000 (4,000,000
Increase (Decrease) in net assets 6,000,000
Dividends Paid 1,500,000
Increase in Share Capital (4,000,000)
Increase in Share Premium (1,000,000)
Net Income 2,500,000
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Conversion Approach (FS Reconstruction)
 The preparation of income statement involves the
computation of individual revenue and expenses by
referring to the cash receipts and disbursements as
well as the changes in assets and liabilities.
 The formula used in converting cash basis to accrual
basis are useful in this case, such as those of:
 Sales
 Purchases
 Other income
 expenses

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Conversion Approach (FS Reconstruction)
Statement of Financial Position items are not readily
determinable, but this can be done through:
 Cash – cash count and examination of bank statements.
 Receivables – summary of unpaid sales invoices and
confirmation of promissory notes.
 Inventories including supplies – physical counting and costs be
examined from purchase invoices.
 Property, Plant and Equipment – examination of deed of sale
and other documents evidencing ownership of title.
 Payables – unpaid purchase invoices, memoranda,
correspondence, promissory notes and consultation with
creditors.
 Equity or capital – difference between assets and liabilities. 12
Illustration No. 4
Negros Store provided the following data obtained from the single entry
records for the current year:
December 31 January 1
Cash 890,000 600,000
Notes receivable 600,000 200,000
Accounts receivable 1,000,000 800,000
Merchandise inventory 500,000 800,000
Equipment 550,000 600,000
Notes payable 250,000 350,000
Accounts payable 500,000 600,000
Accrued interest payable 20,000 40,000
Unearned rent income 20,000 60,000

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Illustration No. 4
The cash book showed the following information

Balance, January 1 600,000

Receipts:
Accounts receivable 1,500,000
Notes receivable 500,000
Cash sales 400,000
Rent income 80,000
Sale of equipment costing P100,000, CA
of P50,000 60,000
Additional investment 300,000 2,840,000
Total 3,440,000

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Illustration No. 4
The cash book showed the following information

Payments:
Accounts payable 750,000
Notes payable 650,000
Cash purchases 300,000
Interest expense 50,000
Expenses 400,000
Equipment 200,000
Withdrawals 200,000 2,550,000
Balance, December 31 890,000

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Illustration No. 4

Supplementary Information:
Sales discount granted to customers 50,000
Sales returns made by customers 150,000
Accounts receivable written off 30,000
Purchase discounts on accounts payable paid 40,000

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Illustration No. 4 - Solution
Step 1: Compute for the net income

December 31 January 1
Cash 890,000 600,000
Notes receivable 600,000 200,000
Accounts receivable 1,000,000 800,000
Merchandise inventory 500,000 800,000
Equipment 550,000 600,000
Total Assets 3,540,000 3,000,000
Notes payable 250,000 350,000
Accounts payable 500,000 600,000
Accrued interest payable 20,000 40,000
Unearned rent income 20,000 60,000
Total Liabilities 790,000 1,050,000
TOTAL CAPITAL 2,750,000 1,950,000
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Illustration No. 4 - Solution
Step 1: Compute for the net income

Capital, ending 2,750,000

Withdrawals 200,000
Additional Investments ( 300,000)
Capital, beg. (1,950,000)
Net Income 700,000

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Illustration No. 4 - Solution
Step 2: Compute for net sales

Cash sales 400,000

Sales on account:
Trade accounts and notes receivable, end 1,600,000
Collection trade accounts and notes (1M – 4K) 2,000,000
Sales returns, discounts and allowances 200,000
Accounts receivable written off 30,000
Trade notes receivable discounted -
Total 3,830,000
Less: Trade accounts and notes, beginning 1,000,000 2,830,000
Total gross sales – accrual basis 3,230,000
Less: Sales returns and allowances 200,000
Net sales – accrual basis 3,030,000

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Illustration No. 4 - Solution
Step 3: Compute for cost of goods sold

Cash purchases 300,000

Purchases on account:
Trade accounts and notes payable, end 750,000
Payment trade accounts and notes 1,400,000
Purchase returns, discounts and allowances 40,000
Total 2,190,000
Less: Trade accounts and notes, beginning 950,000 1,240,000
Total gross purchases – accrual basis 1,540,000
Less: Purchase returns and allowances 40,000
Net Purchases – accrual basis 1,500,000
Merchandise Inventory, beginning 800,000
Total Goods Available for Sale 2,300,000
Less: Merchandise Inventory, ending 500,000
Cost of Goods Sold 1,800,000

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Illustration No. 4 - Solution
Step 3: Compute for other income

Rental payments received 80,000

Accrued rent income – beginning -
Accrued rent income – ending -
Unearned rent income – beginning 60,000
Unearned rent income – ending ( 20,000)
Rent Income – Accrual Basis 120,000

Sales price of equipment 60,000

Carrying amount of equipment 50,000
Gain on Sale 10,000

Total other income 130,000

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Illustration No. 4 - Solution
Step 3: Compute for other expenses

Interest expense – cash basis 50,000

Prepaid interest – beginning -
Prepaid interest – ending -
Accrued interest payable – beginning ( 40,000)
Accrued interest payable – ending 20,000
Interest expense – accrual basis 30,000

Equipment, January 1 600,000

Equipment acquired 200,000
Carrying amount of equipment sold ( 50,000)
Total 750,000
Equipment, December 31 550,000
Depreciation 200,000 22
Illustration No. 4 - Solution
Negros Store
Statement of Income
Year Ended December 31, 2019

Net Sales 3,030,000

Less: Cost of Goods Sold 1,800,000
Gross Profit 1,230,000
Other Income 130,000
Total Revenue 1,360,000
Expenses:
Expenses 400,000
Depreciation 200,000
Bad Debts 30,000
Interest Expense 30,000 660,000
NET INCOME 700,000 23
 Single Entry and Construction of Financial
Statements from Incomplete Records

Learning Objectives:
1. To understand the concept of single entry system in contrast to double
entry system.
2. To identify the records kept under a single entry.
3. To determine net income using the single entry method.
4. To prepare financial statements based on single entry method.

By:
Mr. Remark M. Montalban
Holy Name University

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