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A-level Accounting Year 13
Incomplete Records
Mr. Barry
A-level Accounting Year 13
Learning Outcomes
Students should be able to:• Assess the profit or loss made by a business
that has minimal accounting records based on a comparison of the value of capital at two different dates
• Evaluate a system of incomplete records based on comparing capitals with that of full accounting systems
Mr. Barry
A-level Accounting Year 13
The Reasons for Incomplete Records
• A Sole Trader or Partnership often has neither the time nor expertise to keep a double-entry bookkeeping system
• With the price of computers and software packages specifically for accounts becoming more cost effective, it is easier to for a non-accountant to keep basic records
• Lower accountancy fees by completing simple records in house
Mr. Barry
A-level Accounting Year 13
Advantages of maintaining limited accounting records
• Simple and easy to do, particularly for small businesses that may not have financial expertise
• Do not need to hire a permanent fully qualified accountant
• Do not need expensive tailor-made accounting software
Mr. Barry
A-level Accounting Year 13
• COMMON WTH SOLE TRADERS
• Since they do not keep ledger accounts therefore they have no trial balance.
• To find the profit it is necessary to use the figures available and to use our knowledge of the relationship between these figure.
• ACCOUNTS ARE COMPILED FROM BANK STATEMENTS AND INVOICES PROVIDED
Mr. Barry
A-level Accounting Year 13
Method 1 – Net worth/ Net Assets Balance sheet method
Method 2 - Mark up and Margin
Two methods
Mr. Barry
A-level Accounting Year 13
• ASSETS = LIABILITIES + CAPITAL
• ASSETS – LIABLITIES = CAPITAL
ACCOUNTNG EQUATION
Mr. Barry
A-level Accounting Year 13
• PROFIT INCREASES CAPITAL• CAPITAL INTRODUCED INCREASES CAPITAL• DRAWNGS REDUCE CAPITAL
• Opening Capital• Add Profit• Add Capital Introduced• Less Drawings• = Closing capital
CHANGES TO CAPITAL
Mr. Barry
A-level Accounting Year 13
1)CALCULATE THE OPENING CAPITAL
2)CALCULATE THE CLOSING CAPITAL
DIFFERENCE IS PROFIT, DRAWINGS AND CAPITAL INTRODUCED
NET WORTH CAPITAL
Mr. Barry
A-level Accounting Year 13
• OPENING CAPTAL €100,000• CLOSING CAPITAL €150,000• DRAWNGS FOR THE YEAR €15,000• NO CAPITAL INTRODUCED• WHAT WAS THE ANNUAL PROFIT?
EXAMPLE 1
Mr. Barry
A-level Accounting Year 13
Sales- COS=Gross Profit
Cost of Sales = Opening Stock + Purchases – closing stock
COS + Clos stock – Purchases= Opening stock
Net profit = Gross profit – expenses
Net profit + expenses = Gross profit
This method depends on knowledge of the relationship between the various figures
making up profit and loss.
Mr. Barry
A-level Accounting Year 13
• MARK UP is the Gross Profit expressed as a percentage of the COS– Mark up % OF COST
• MARGIN is the gross profit as a percentage of selling price– Margin % OF SALES PRICE
MARK UP AND MARGIN
Mr. Barry
A-level Accounting Year 13
• Opening Stock 10,000• Purchases 50,000• Closing stock 12,000• Mark up 25%
EXAMPLE MARK UP
Mr. Barry
A-level Accounting Year 13
Sales ?Less COSOp Stock 10,000+ Purchases 50,000- Clos stock 12,000 48,000
Gross profit ?
COS + MARK UP = SALES48,000 +12,000 (25%) = 60,000
THEREFORE SALES = 60,000
Mark up cont.
Mr. Barry
A-level Accounting Year 13
– Opening Stock 36,000– Sales 120,000– Closing stock 40,000– Margin 25%
Example Margin
Mr. Barry
A-level Accounting Year 13
Sales 120,000Less COSOpening stock 36,000Purchases ?Less closing stock (40,000) ? Gross Profit ?
Gross profit = 25% Sales = 30,000
Sales – gross Profit = COS = 90,000
COS +Clos stock = Opg stock +purchasesTherefore Purchases = 94,000
Margin cont.
Mr. Barry
A-level Accounting Year 13
Key term
Statement of affairs: a basic statement of financial position (Balance sheet), that can be used to calculate missing figures such as profit, loss, opening or closing capital
Mr. Barry
A-level Accounting Year 13
Statement of affairs
N.B REMEMBER YOUR ACCOUNTING EQUATION
ASSETS- LIABILITIES= ?
Mr. Barry
A-level Accounting Year 13
Example£ £
Assets
Machinery 10,000
Inventory 2,000
Trade Receivables 1,000
Bank 5,500
18,500
Liabilities
Trade payables 3,500Other Payables (accruals) 500 4,000
CAPITAL ?
Mr. Barry
14,500
Statement of Affairs for J. Wimpenny at 1 January 2013
