Match each term or concept related to the single entry system of bookkeeping on the left with its corresponding accounting feature or limitation on the right.
- Nominal Accounts OmissionMajor drawback characterized by the exclusion of revenue and expense accounts from the ledger system.
- Cash Book and Personal LedgersPrimary feature where record-keeping is strictly confined to monetary movements and customer or supplier balances.
- Trial Balance Extraction FailureDirect consequence of non-dual recording, preventing the formal verification of arithmetical accuracy in the books.
- Statement of AffairsSubstitutive financial statement prepared to estimate capital and profit by comparing opening and closing net assets.
Answer
Nominal Accounts Omission pairs with the major drawback of excluding revenue and expense accounts; Cash Book and Personal Ledgers pairs with the primary feature of maintaining only cash and debtor/creditor records; Trial Balance Extraction Failure pairs with the inability to verify arithmetical accuracy due to non-dual entries; and Statement of Affairs pairs with the substitutive financial statement used to compute capital and profit.
In a single entry system, bookkeepers maintain unsystematic records strictly centered around cash transactions and personal debtor/creditor accounts. Nominal accounts (income and expenses) are omitted, which causes the major limitation of being unable to extract a trial balance to verify arithmetical accuracy. As a result, businesses rely on a Statement of Affairs to compute capital and ascertain net profit based on changes in net assets.
Step-by-Step Solution
Key Concept
Features, Limitations, and Profit Estimation under Single Entry Bookkeeping
Estimated Time:1m 30s