“CASH BASIS AND ACCRUAL BASIS”

and “SINGLE ENTRY”

John Laurence Domingo
June Kean Garcia
Cash Basis and Accrual Basis
• Cash basis versus accrual basis
• Computation of sales
• Computation of purchases
• Computation of income other than
sales
• Computation of expenses
• Adjustments of cash basis
statements to accrual basis
statements
 Methods of Accounting

• Cash Basis – income is recognized when

received, and expense is recognized when
paid.

• Accrual Basis – income is recognized when

earned, and expense is recognized when
incurred.
 Cash Basis vs Accrual Basis
Item Cash Basis
Sales Cash sales plus collection of trade
receivables
Purchases Cash purchases plus payments to
trade creditors
Income other than sales Items received are considered as
income regardless of when earned
Expenses, in general Items paid are treated as expenses
regardless of when incurred
Depreciation Depreciation is provided normally
Bad debts No bad debts are recorded because
trade receivables are not
recognized
Accrual Basis
Cash sales plus sales on account
Cash purchases plus purchases on
account
Items earned are considered as
income regardless of when received
Items incurred are treated as
expenses regardless of when paid
Depreciation is provided normally
Doubtful accounts are treated as
bad debts
Computation of Sales
Computation of Purchases
Computation of Income other than
Sales
Computation of Expenses in
general
 Adjustments of Cash Basis to
Accrual Basis Statement

All adjustments for the previous year should

be debited to the capital account (if sole
proprietorship or *partnership) or to the
retained earnings account if a corporation.

*In case of partnership, all adjustements to

their capital accounts must be in accordance
with their profit and loss sharing ratio.
Single Entry
• Single entry system
• Single entry method of determining
net income or loss
• Preparation of financial statements
from single entry records
 Methods of Bookkeeping

• Double-Entry Method – method of recording

business transactions in terms of the dual
effect on the accounting elements.

• Single-Entry Method – method of recording

business transactions without analyzing or
considering the dual effect of each transaction
on the accounting elements.
 Single Entry System

This is a system of record keeping in which

transactions are not analyzed and recorded in
the double entry framework.

Records maintained under the single entry

basis are said to be incomplete.
 Single Entry System

Cashbook – shows the cash receipts and

disbursements but without specific debits or
credits. Only a description of the receipt or
disbursement is made. With respect to
accounts receivable and payable, only a list of
customers and creditors is made with their
corresponding balances.
 Single Entry System

Records maintained under the single entry

system:
• Cash
• Accounts Receivable
• Accounts Payable
• Property, plant and equipment
• Taxes paid
 Single Entry System

Single entry problems:

• Single entry method of determining net

income or loss
• Preparation of income statement
• Preparation of balance sheet
Single Entry Method (Detrmining
Net Income or Loss)

Net Assets or Capital Maintenance Approach

This is the single entry method of determining
net income or loss. This is done by comparing
the capital or retained earnings at the
beginning of the year and capital or retained
earnings at the end of the year after taking
into consideration withdrawals or dividends
and additonal investments.
Single Entry Method (Detrmining
Net Income or Loss)

Net Assets or Capital Maintenance Approach

Any increase in capital or retained earnings is

net income and any decrease in capital or
retained earnings is net loss.
Net Assets/Capital Maintenance
Approach
 Preparation of Financial
Statements

Income Statement – under the single entry

system, this can be prepared by computing for
individual revenue and expense balances by
reference to the cash receipts and
disbursements and the changes in net assets
and liabilities. The formulas used in converting
cash basis to accrual basis of accounting are
useful in this case.
Preparation of Financial
Statements
 Preparation of Financial
Statements

Balance Sheet – under the single entry

system, this involves inventorying, counting
and verification procedures to determine the
nature and amount of most of the assets and
liabilities.
 Preparation of Financial
Statements

Cash – could be determined by count and by

examining bank statements.
Accounts and Notes Receivable – could be
summarized from unpaid sales invoices and
promissory notes.
Merchandise on hand, supplies and other
inventories – could be counted and their cost
determined from purchase invoices.
 Preparation of Financial
Statements
Cost of Property, Plant and Equipment –
could be established by reference to deeds of
sale and other documents evidencing
ownership of title.
Accounts and Notes Payable – could be
summarized from purchase invoices,
memoranda, correspondences and even
consultation with creditors.
Owner's Equity/Capital – difference between
the value assigned to assets and liabilities.