Single entry system
This query is : Resolved
16 March 2012
HELLO FRIENDS!!!! I have got a query regarding "SINGLE ENTRY SYSTEM",.....Why is opening and closing capital account taken into consideration while calculating the "STATEMENT OF PROFIT OR LOSS",is there any relationship between profit or loss and the CAPITAL A/C.........(if i am not wrong),then CAPITAL A/C'S are just maintained to know the extent of liability of a business concern towards the owner....then why is that taken into cosideration? please explain....
-thanking in advance!!!!
-thanking in advance!!!!
16 March 2012
For sole traders and partnership firms they are the owners, ultimate profit / loss belonging to them only.
Normally at the year end either profit / loss will be transferred to capital a/c( You may aware at the time of finalization of accounts)
If no profit / loss, capital account remains same as at the year beginning .
The same will be adjusted accordingly at the assets side ex. profit- cash balance may increase, Fixed assets can go up etc.
Under single entry system, we compare the closing capital and opening capital to know profit / loss ( If no profit / loss the result will be '0').
Normally at the year end either profit / loss will be transferred to capital a/c( You may aware at the time of finalization of accounts)
If no profit / loss, capital account remains same as at the year beginning .
The same will be adjusted accordingly at the assets side ex. profit- cash balance may increase, Fixed assets can go up etc.
Under single entry system, we compare the closing capital and opening capital to know profit / loss ( If no profit / loss the result will be '0').
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