Question

Write the word / term / phrase which can substitute each of the following Statements.

The accounting method in which profit is calculated by comparing opening and closing statements of affairs.

Answer 1

Net Worth Method

Explanation: Under single-entry system, profit or loss is calculated by comparing capital at two dates, i.e. opening capital and closing capital. The profit is calculated as closing capital less opening capital and also, the following adjustments are made:

a. Drawings: If drawings are made during the year, they should be added to the amount of closing capital.
b. Additional capital: If additional capital is introduced in the business during the year, it should be deducted from the amount of closing capital.
c. Interest on capital: If interest is provided on capital, it should be deducted from the amount of closing capital.