List any two benefits of conversation of single entry system into double entry system?
(1) Take up the Statement of Affairs at the end of the previous trading period and open all those accounts which have not already been opened. Generally, under the Single Entry System, cash, bank and personal accounts are maintained. Now, it will be necessary to open/the remaining accounts and debit or credit them with the opening balances as the case may be.
(2) From the debit side of the Cash Account, accounts other than the bank account and accounts of customers (on the presumption that such accounts are already maintained) should be credited. For example, if one finds that Rs 5,000 was received by sale of furniture, one should credit Furniture Account with Rs 5,000.
If an entry shows that Rs 4,500 was received from X, no further treatment will be necessary because the account of the customer would already be there and it must have been credited with the amount. A frequent item will be cash sales. Cash Sales Account should be opened and credited with the amounts of case sales.
(3) From the credit side of the Cash Account, various accounts (other than the bank account and accounts of creditors) should be debited. On this side of the Cash Account, will be found amounts paid for cash purchases, for various expenses and for various assets acquired. All these accounts will be debited.
(4) Treatment similar to (2) and (3) above will be required for Bank Account. Cash paid in or cash drawn for office-use, payment made to suppliers by cheques or receipts from debtors will already have been entered in these accounts; hence, double entry will be required to be completed only in other accounts that may figure. For instance, one will know from Bank Account what bills have been discounted and what discounted bills have been dishonoured, or what the bank charges are.
(5) If a Petty Cash Book is maintained, the monthly analysis will have to be posted in the ledger—various accounts for expenses debited and the total credited to Petty Cash Account. The debit to the Petty Cash Account must already have been completed from the Cash or Bank Account.
(6) A complete analysis of the customers’ accounts will have to be prepared. This will give vital information regarding credit sales, sales returns, discounts allowed, bills received, bills dishonoured, etc.
Suppose, the following are the various customers’ accounts:
To complete double entry now, what is required is to:
(i) Credit Sales Account with Rs 14,190, Freight (or charges) Account with Rs 140 and Bills Receivable Account with Rs 1,480 and
(ii) Debit Discount Account with Rs 80, Bills Receivable Account with Rs 6,480, Returns Inwards Account with Rs 400, Allowances Account with Rs 50 and Bad Debts Account with Rs 200. No further entry is required regarding cash or bank, as this must already have been completed.
(7) A similar analysis of suppliers’ accounts will reveal purchases made, bills payable dishonoured or other charges debited by the suppliers (from the credit side of the accounts) and discounts earned, returns outwards, bills issued to creditors, etc. (from the debit side of the accounts). Accounts other than those relating to cash paid or cheques issued will debit or credited, as the case may be.
(8) The proprietor will have to remember other items which require entries in the books. To take an example, if a piece of machinery has been disposed of, any loss or profit resulting from such disposal will have to be brought into the books.
(9) A trial balance should then be prepared to see that there is no arithmetical mistake.