Books according to this system can be maintained only by those small entities in the form of Sole Proprietorship or Partnership firms that are not bound to keep records of business transactions as per double entry system

Explanation:

The correct answer is option 'B' - Sole proprietor and partnership.

The incomplete records system is a method of accounting where the books of accounts are not maintained in a complete and systematic manner. It is mostly used by small entities that do not have the resources or expertise to maintain proper accounting records. In this system, only limited information about the business transactions is recorded, and the financial statements are prepared based on this limited information.

Reasons for maintaining books according to the incomplete records system:
There are several reasons why small entities may choose to maintain books according to the incomplete records system:

1. Limited resources: Small entities may not have the financial resources to hire professional accountants or invest in accounting software. Maintaining books according to the incomplete records system allows them to keep track of their financial transactions without incurring significant costs.

2. Simplicity: The incomplete records system is relatively simple and easy to understand. It does not require complex accounting procedures or extensive knowledge of accounting principles. This makes it suitable for small entities that may not have the expertise to maintain proper accounting records.

3. Time-saving: Maintaining books according to the incomplete records system requires less time and effort compared to maintaining complete and systematic accounting records. Small entities often have limited manpower and time, and the incomplete records system allows them to focus on their core operations.

Entities that can maintain books according to the incomplete records system:
While the incomplete records system can be used by any small entity, it is most commonly used by sole proprietors and partnerships.

1. Sole proprietorship: A sole proprietorship is a business owned and operated by a single individual. It is the simplest form of business organization, and the owner has unlimited liability for the business's debts and obligations. Sole proprietors often have limited resources and may choose to maintain books according to the incomplete records system due to its simplicity and cost-effectiveness.

2. Partnership: A partnership is a business organization in which two or more individuals share the profits and losses of the business. Like sole proprietors, partners in a partnership often have limited resources and may opt for the incomplete records system to maintain their books. This system allows them to keep track of their financial transactions without incurring significant costs or complexity.

Conclusion:
The incomplete records system is a suitable method of accounting for small entities that do not have the resources or expertise to maintain proper accounting records. Sole proprietors and partnerships, due to their limited resources and simplicity of operations, are the most common entities that maintain books according to the incomplete records system.