Incomplete Records - Accounting Tuition

Incomplete records simply mean that transactions have been recorded on a single basis or part of the records of a business have been destroyed / lost. It may also happen that the accounts of a business have been prepared by an incompetent accountant. In case of a cash basis business, the profit of a business may be calculated as follows:

Statement of Profit / (Loss)	$
Capital at end (Closing Capital)	****
Less Capital at start (Opening Capital)	(**)
Less Additional capital	(**)
Add Drawings	**
Profit / (Loss)	*******

A statement of affairs is prepared at start and at end of the year to show opening and closing capital. A statement of affairs simply shows assets and liabilities. In other cases, the single entries must be converted into double entries and then use the available information to prepare the financial statements. The following steps may be followed:

Step 1 - Calculate capital at start

Capital = Assets at start – Liabilities at start

Step 2 - Calculate total sales

To calculate credit sales

Trade Receivables account
Balance b/f	***	Receipts	***
Credit sales	?	Discount allowed	***
		Return inwards	***
		Bad debts	***
		Balance c/d	***
	***		***
Balance b/d	***

To calculate cash sales / cash stolen

Cash Account
Balance b/f	***	Cash sales banked	***
Cash sales	?	Purchases	***
Other cash receipts		Drawings	***
		Expenses	***
		Cash Stolen	?
		Balance c/d	***
	***		***
Balance b/d	***

Note: Cash stolen must be recorded as an expense in the income statement

Total Sales = Credit sales + Cash sales

Margin and markup may be used to calculate sales, gross profit and cost of sales

If Margin = 25%
Then	Gross Profit = 25/100 * Sales

	Cost of sales= 75/100 * Sales

If Markup = 20%
Then	Gross Profit = 20/100 * Cost of sales

	Gross Profit = 20/120 * Sales

Step 3 - Calculate total purchases

Trade Payables Account
Payments	***	Balance b/f	***
Discount received	***	Credit purchases	?
Balance c/d	***
	***		***
		Balance b/d	***

Total purchases = Credit purchases + Cash purchases

Step 4 - Calculate amount of expenses to be recorded in income statement

Expenses Account
Balance b/f	***	Balance b/f	***
(Prepaid at start)		(Due at start)
Bank	***	Income Statement	?
Balance c/d		Balance c/d
(Due at end)	***	(Prepaid at end)	***
	***		***
Balance b/d	***	Balance b/d	***

Step 5 - Calculate amount of Depreciation charged to income statement

Non-current assets Account
Balance b/f	***	Disposal - NBV	***
Acquisition	***	Depreciation	***
		Balance c/d	***
	***		***
Balance b/d	***

Disposal account may be prepared to calculate Profit / Loss on disposal. (Chapter IAS 16)

Worked Example 1 - Incomplete Records – Cash Stolen

Nikhil does not keep a full set of accounting records. However, he was able to provide the following information for the year ended 31st December 2017:

	1^st January 2017	31^st December 2017
Property - cost	80 000	80 000
Equipment - NBV	23 000	37 000
15% Bank Loan	28 000	28 000
Inventory	12 000	10 000
Trade receivables	8 000	8 500
Trade payables	6 200	5 900
Cash	1 050	450
General expenses Due	300	150
General expenses Prepaid	200	450

Bank Account
Balance b/f	1 400	Payment to suppliers	56 970
Cash sales banked	8 530	General expenses	76 830
Receipts from customers	145 570	Equipment	20 000
		Balance c/d	1 700
	155 500		155 500

Additional information:

Cash sales amounted to $67 240
The following cash payments were made:

Purchases $ 8 430

Drawings $ 16 500

General Expenses $ 32 780

Nikhil suspects that an amount of cash has been stolen from the cash till.
Discount allowed and received were $ 500 and $ 900 respectively
Nikhil withdrew goods valued at $ 1 800 for his own use. No records were made

Required a) Income statement for the year ended 31^st December 2017

b) Statement of financial position as at 31^st December 2017.

Step 1 - Calculate capital at start

Assets = 80 000 + 23 000 + 12 000 + 8 000 + 1 050 + 200 + 1 400 = 125 650

Liabilities = 28 000 + 6 200 + 300 = 34 500

Capital = 125 650 – 34 500 = 91 150

Step 2 - Calculate total sales / cash stolen

Trade receivables Account
Balance b/f	8 000	Receipts	145 570
Credit sales	146 570	Disc. Allowed	500
		Balance c/d	8 500
	154 570		154 570
Balance b/d	8 500
Cash Account
Balance b/f	1 050	Cash sales banked	8 530
Cash Sales	67 240	Purchases	8 430
		Drawings	16 500
		Gen. Expenses	32 780
		Cash stolen	1 600
		Balance c/d	450
	68 290		68 290
Balance b/d	450

Total sales = Credit sales + cash sales = 146 570 + 67 240 = 213 810

Step 3 - Calculate total purchases

Trade payables Account
Payments	56 970	Balance b/f	6 200
Disc. Received	900	Credit purchases	57 570
Balance c/d	5 900
	63 770		63 770
		Balance b/d	5 900

Total purchases= Credit purchases + cash purchases = 57 570 + 8 430 = 66 000

Step 4 - Expenses charges to income statement

General Expenses Account
Balance b/f	200	Balance b/f	300
Cash	32 780	Income Stmt.	109 210
Bank	76 830	Balance c/d	450
Balance c/d	150
	109 960		109 960
Balance b/d	450	Balance b/d	150

Step 5 - Depreciation charged to income statement

Equipment at NBV Account
Balance b/f	23 000	Disposal	***
Acquisition	20 000	Depreciation	6 000
		Balance c/d	37 000
	43 000		43 000

Income Statement for the year ended 31st December 2017	$	$
Revenue		213 810
Less Cost of sales
Opening inventory	12 000
Purchases	66 000
Less drawing of goods	(1 800)
Less closing inventory	(10 000)
Cost of sales		(66 200)
Gross Profit		147 610
Discount received		900
		148 510
Less Expenses
Depreciation on Equipment	6 000
Discount allowed	500
General expenses	109 210
Interest on bank loan(15/00*28000)	4 200
Cash stolen	1 600	121 510
Profit for the year		27 000

Statement of financial position as at 31st December 2017
Non Current Assets
Equipment		37 000
Property		80 000
		117 000
Current Assets
Closing inventory	10 000
Trade receivables	8 500
Bank	1 700
Cash	450
Other receivables	450	21100
Total Assets		138100
Equity
Capital at start		91150
Add Profit for the year		27000
Less Drawings (16500+1800)		(18 300)
Owner's capital		99850
Noncurrent liabilities
15% Bank Loan		28000
Capital Employed		127850
Current Liabilities
Trade payables		5900
Other payables : Gen. Expenses due		150
Other payables : Interest on loan due		4200
Equity and Liabilities		138100