A Visit to cloth merchant who is maintaining his books of accounts under single entry system. preparation of statement of affairs & statement of profit & Loss from the data collected
Answers
I got a chance recently, to visit a cloth merchant staying at my nearby locality shop.
In this case it has been told that the cloth merchant has been maintaining his book of accounts under single entry system.
The statement of affair represents about the assets and capabilities of a company hence explaining about the total records.
Apart from this, one can also acquire information from newt book value as well as matters of insolvency.
Hence it is ideal to understands about the losses incurred in that financial year as well as then profits made in business.
Under singal entry system profit & loss statement is compiled by comparing capital between two accounting periods. For example a cloth merchant will accertian his profit or loss statement by comparing his beginning and closing capital, in this capital represents the business assets. So if closing capital is greater than opening capital, it will show profit or vise versa.
After the preparation of profit and loss, the statement of Affairs at the closing date with similar to date of balance sheet. It will consider the depreciation, bad debts, fixed assets etc.