Calculation Of Profit Or Loss Under Single Entry System

The following method is used for the calculation of profit or loss under single entry system.

Net Worth Method
Net worth method is also called statement of affairs method or capital comparison method. According to this method profit or loss of the business is determined by making comparison between the capital of two dates of a period. For example,
Capital as on 1st January 2009 = $ 150000
Capital as on 31st December 2009 = $ 200000
Profit for the year 2009 = Closing capital -Opening capital = $200000-$150000 = $50000.

If there are other capital related items such as drawing, additional capital, interest on capital etc. are to be adjusted to ascertain the amount of profit or loss.
These items include:

* Drawing: If the drawing is made during the year, it should be added to the amount of closing capital.
* Additional capital: If additional capital is introduced in the business during the year, it should be deducted from the amount of closing capital.
* Interest on capital: If the interest is provided on capital, it should be deducted from the amount of closing capital.