To ascertain the profit, closing capital is to be adjusted by deducting opening capital and adding drawings.

When there is no double entry system of accounting is followed, the profits are calculated on the basis of comparing the opening and closing of capital/assets by giving the effect of drawings.

        Closing Capital                         1,80,000

When single entry system is followed, profits can be calculated by comparing the capital at the beginning of the year and capital at the end of the year. This can be formulated as:

Allowing interest on capital is an indirect expense for the business, an increase in expenses will lower the profit for the year. Hence, Interest on capital is deducted.

Additional capital during the year is a result of working capital requirements and closing capital is the composition of profit or loss along with some capital contribution.
Hence, to remove the capital effect additional capital is deducted from closing capital in order to derive the correct profit or loss earned by the company.

The Statement of Affairs Method: takes the difference of opening and closing capitals for calculation of profit or loss under Single Entry System
The Conversion Method of single entry system: tries to convert the records from single entry to double entry system to find the Profit or loss earned by the business.

An increment of closing capital is a result of excess revenue earned during the year against the opening capital at the beginning thus representing Profit.

As Drawing refers to withdrawal of capital, Due to drawings, closing capital is decreased resulting a reduced Profit.
Hence, to ascertain correct profit Drawings are added back to closing capital.

Calculation of total assets at the end of the year :- 

Profit is calculated by the taking into account the fluctuations of the capital at the beginning and at the end of the year, by adding the drawings, and deducting the capital introduced to the capital at the end of the year.  

To ascertain the Capital, Statements of affairs are prepared.
Capital = Assets - Liabilities
The above equation under which statement of affairs are prepared reflects the financial position of the business.

Statement of Affairs is Based under Accounting Equation " Assets = Capital + Liabilities"
thus to ascertain the Closing Capital at the end of the year  Closing Liabilities are deducted from closing assets.

As assets represents the total funds applied in the business from capital (owners fund) and liabilities(external funds e.g bank loan, creditors etc).
therefore the difference between Assets and Liabilities will represent Capital.

Calculation of total assets at the end of the year :- 

Sometimes a shareholder pays a portion or whole on the unpaid amount on the shares held by him in advance. In such a case, money so received in advance is transferred to Calls-in- advance account. It is important to note that calls-in-advance does not form part of share capital. In-spite of this, according to Section 93 dividend may be paid on calls in advance, if authorized by the Articles.

Disclosure in Balance Sheet:

Calls in advance is shown separately, in the Balance Sheet as liability of the company under the heading ‘Current Liabilities’ until the calls are made and the amount actually becomes payable by the shareholder.

Interest on Calls-in-advance:

Since the amount received as calls-in-advance is a liability of the company, it is liable to pay interest on the calls-in-advance from the date of receipt of the amount till the date when the call becomes due for payment. If the Articles of the Company are silent about the rate of interest on calls-in-advance, then rate of interest is 6% p.a. Such an interest is a charge on profits and has to be paid to the concerned shareholder even if there is no profit.

The accounting treatemt for interest on calls in advance is as follows:

1. For interest due

 Interest on calls in advance A/c     Dr.

                To sundry shareholder's  A/c

2. For interest paid

 Sundry shareholder A/c                  Dr.

                To Bank A/c

3. For transfer of balance of interest to profit and loss A/c

  Profit and Loss A/c                            Dr.

                  To Interest on calls in advance A/c

Calculation of total assets at the end of the year :-