15 Incomplete Records

MOHAMMED ABDUL RAHMAN 0502143725 - 01223344379 GOOD LUCK

15- Incomplete records Sometimes business, especially small businesses, do not maintain a full set of double entry records. Consequently,

no trial balance will be produced and a complete set of final accounts cannot be prepared without further analysis

of the records that do exist.

So how can the financial

statements be prepared if the

bookkeeping records are

inadequate or incomplete?

Where the only records available are the assets and liabilities at the beginning of the year and at the end of the

year, it is not possible to prepare a trading and profit and loss account. The assets and liabilities are usually listed

in a Statement of Affairs. This would have been called a Balance Sheet if it had been drawn up from a set of double entry records.

Statement of Affairs can be prepared horizontally or vertically.


Four basic techniques used for

incomplete records

1. Construction of opening & closing balance

sheets or capital

2. Construction of a cash and / or bank

summary

3. Construction of sales and purchase

figures.usually done via control accounts

4. Use of gross / net profit percentage

Give me four reasons why capital might change.

1.

2.

3.

4.

Construction of opening & closing

balance sheets or capital

Introduction of extra capital

Withdrawal of capital

Profit earned by the business

Loss suffered by the business


1 DISTINCTION BETWEEN INCOMPLETE

AND LIMITED ACCOUNTING RECORDS

Incomplete accounting records records which the trader has not fully completed or where no records at all have been kept of transactions.

Limited accounting records :records kept by a trader of certain transactions but additional information is required to prepare financial statements.

The only way the profit for the year can be found is by comparing capital shown in the opening statement of

affairs with the capital shown in the closing statement of affairs


PROFIT OR LOSS = THE

INCREASE OR

DECREASE IN CAPITAL.

We can calculate profit when we have details of the

opening and closing capital.

Activity 1

The opening capital of Edna Clouds at 1 Jan 2005 was

2,000. At 31 December 2005 the capital figure was

8,500.

How much profit has been earned during the year?

Opening capital 2,000

Closing capital 8,500

Profit (must be) 6,500

Closing capital - Opening capital = Profit

It may be that the owner has made drawings during the years, which will account for some of the difference in the

capital figures



Capital introduced 4,000

Withdrawals - 8,000

12,000


Profit (must be) 18,000


Withdrawals -12,000

20,000


Loss (must be) - 2,000

Closing capital - Opening capital + Drawing = Profit

If the owner the owner has introduced more capital during the years, this will also account for some of the

difference in the capital


We can calculate profit when we have details of

the opening and closing capital and have details

of capital introduced and withdrawn during the

year.

Activity 2

The opening capital of Ivy Cladwall at 1 Jan 2005

was 16,000. On 1 July 2005 she introduced

further capital of 4,000 and during the year

withdrew a total of 8,000. At 31 December

2005 the capital figure was 30,000.

How much profit has been earned during the

year?

Closing capital - Opening capital + Drawing Capital introduced = Profit

Calculating the profit from the change in the capital is far from satisfactory, as is does not provide any information

about sales, purchases, expenses and gross profit.


This method of calculating profit is

unsatisfactory and should only be done in

exceptional circumstances.

A full set of financial statements should be

drawn up from the available information.

Calculation of sales The amount actually received from debtors is not necessarily equal to the credit sales. Some of the money

received relates to the amount owing at the start of the year, for sales made in the previous year. In addition the

debtors have not yet paid for some of the goods sold on credit to them during the current financial year.

The credit sales for the year may be calculated:-

Receipt from debtor X X

- Less debtors at 1 Oct (OPEN BALANCE ) X X

X X

+ Plus debtors at 31 Sept (CLOSE BALANCE) X X

Credit sales for the year XX

Note: remember total sales for the year are the credit sales + cash sales

Calculation of Purchases The amount actually paid to creditors is not necessarily equal to the credit purchases. Some of the money paid

relates to the amount owing at the start of the year, for purchases made in the previous year. In addition the


creditors have not yet been paid for some of the goods purchased on credit from them during the current financial

year.

The credit purchases for the year may be calculated:-

Payments to creditors X X

- Less creditors at 1 Oct (OPEN BALANCE ) X X

X X

+ Plus creditors at 31 Sept (CLOSE BALANCE) X X

Credit purchases for the year XX

Note: remember total purchases for the year are the credit purchases + cash purchases

Construction of sales and purchase

figures.usually done via control accounts

Construct a control account

Control accounts essentially contain 4

items..

1. Opening debtors

2. Closing debtors

3. Credit sales

4. Receipts from debtorsIf we know 3 items , we can calculate the

fourth!!


Construction of sales and

purchases

Donald does not keep proper accounting

records. He knows that his

opening debtors were 500 and his

closing debtors were 400.

He has already reconstructed his bank

account and knows that receipts from

debtors were 2,200. He needs to calculate his

sales


Detail Detail

Bal b/d 500 Bank receipts 2200

Sales 2100

Bal c/d 400

2600 2600

Debtors control

Construction of debtors control

account to calculate sales

Calculation of closing Bank Balance

The bank balance at end of the year is calculated by preparing a summary of the bank account. The opening

balance is shown, together with the total amount received and the total amount paid ant the account is then

balanced

Construction of a cash or bank

summary

If we know the opening and closing bank

account balances we might be able to

calculate a missing figure for sales receipts

or purchases


Construction of a cash or bank

summary example

Donald does not keep proper accounting

records. His bank statements show that his

opening bank balance was 100 and his

closing bank balance was 400.

He knows that his payments to suppliers were

1,200 and he took drawings of 700 (paid by

cheque) but he has no idea of his receipts

from debtors?

Date Detail Date Detail

Bal b/d 100 Creditors 1200

Debtors 2200 Drawings 700

Bal c/d 400

2300 2300

T Account

Construction of an opening cash or

bank summary example

We now know our receipts from debtors, which might

be the sales figure

Or could help us calculate the sales figure


Mark-up, margin, and stock turnover

It is sometimes necessary to use percentages to calculate missing information

Mark-up and margin

The margin is the gross profit measured as a percentage of the selling price.

The mark-up is the gross profit measured as a percentage of the cost price. This is the amount added to the cost

price to determine the selling price.

Example: The sales of a business for July were 50,000. The cost of goods sold was 40,000. Calculate (I) the mark-up

(ii) the margin.

(i) Mark-up = Gross Profit X 100 = 10,000 X 100 = 25%

Cost of Sales 1 40,000 1

(ii) Margin = Gross Profit X 100 = 10,000 X 100 = 20%

Sales 1 50,000 1

These calculations can be used to calculate a missing figure in a trading account

Use of gross / net profit percentage

Missing figures can also be calculated

using gross or net profit percentages

If we know that gross profit is 20% of

sales, we can calculate the cost of sales if

we know our sales figure.

If we know cost of sales and our opening

and closing stock, we can easily calculate

purchases


Use of gross / net profit percentage

example

Duck has sales of 100. He knows that his gross profit percentage is 20% of sales.

His opening stock was 20 and his closing stock was 25. What is Ducks purchases?

1. C.O.S is 80% of 100 = 80

2. 20 + purchases? - 25 = 80

3. Purchases = 85

---To convert mark-up to margin( where figures are percentages):

Margin=mark-up/(mark-up+100)

---To convert margin to mark-up

Mark-up=margin/(100-margin)

---Uses of margin and mark-up

Rate of stock turnover


This is the number of times a business replace its stock in a given period

1- = Cost of goods sold

Average stock

Cost of goods sold

Average stock

Example: a business provide the following information for the year ended 30 Sep 20-4

Stock 1 Oct 20-4 6,800

Stock 30 Sep 20-5 6,000

Mark-up 25%

Rate of turnover 5 times a year

2- Average stock = 6,800 + 6,000 = 6,400

2

3- Rate of turnover = 5 = Cost of goods sold = Cost of goods sold

Average stock 6,400

Therefore Cost of goods sold = 5 X 6,400 = 32,000

4- Mark-up = 25%

Therefore gross profit = 25% X 32,000 = 8,000

Documents

15 Incomplete Records