BOOK KEEPING: FORM THREE: Topic 11 - INCOMPLETE RECORDS

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TOPIC 11: INCOMPLETE RECORDS

Incomplete Records

Statements Showing Profit or Loss From Incomplete Records

Draw up statements to show profit or loss from incomplete records

Some times, businesses, 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.

Where 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 (Similar to a Balance Sheet). This would have been called a Balance Sheet if it had been drawn up from a set of double entry records. Like a Balance Sheet, a Statement of Affairs can be prepared horizontally or vertically.

The only way the profit for the year can be found is by comparing the capital shown in the opening Statement of Affairs with the capital shown in the closing Statement of Affairs.The basic formula is:

Profit Loss = Closing Capital – Opening Capital (Positive figure means Profit and Negative figure means Loss)

It may be that the owner has made drawings during the year, which will account for some of the difference in the capital figures. Similarly the owner might have brought in additional capital during the year, which will also account for some of the difference in the capital figures. In this case the formula must again be modified:-

Profit or Loss = Closing Capital + Drawings during the year – Additional Capital during the year – Opening Capital (Positive figure means Profit and Negative figure means Loss)

Calculation of Profit or Loss by converting the Incomplete Records into Double entry Records,

In this case, in order to calculate the profit or loss of the business during the year, the Trading and Profit and Loss accounts are prepared. For preparing the Trading and Profit and Loss accounts, all necessary information is not available in the books. So first the missing items have to be calculated which are necessary for the preparation of Trading and Profit and Loss accounts.

Example 1

Trading, Profit and Loss Account

Prepare trading, profit and loss account

Example 2

From the following balances extracted from the books of X & Co, prepare a trading and profit and loss account on 31st December, 1991.

$		$
Stock on 1st January	11,000	Returns outwards	500
Bills receivables	4,500	Trade expenses	200
Purchases	39,000	Office fixtures	1,000
Wages	2,800	Cash in hand	500
Insurance	700	Cash at bank	4,750
Sundry debtors	30,000	Tent and taxes	1,100
Carriage inwards	800	Carriage outwards	1,450
Commission (Dr.)	800	Sales	60,000
Interest on capital	700	Bills payable	3,000
Stationary	450	Creditors	19,650
Returns inwards	1,300	Capital	17,900

The stock on 21st December, 1991 was valued at $25,000.

Solution

X & Co.Trading and Profit and Loss Account For the year ended 31st December, 1991

To Opening stock		11,000	|	By Sales	60,000
To Purchases	39,000		|	Less returns i/w	1,300
Less returns o/w	500		|			58,700
		38,500	|	By Closing stock		25,000
To Carriage inwards		800	|
To Wages		2,800	|
To Gross profit c/d		30,600	|
			|
		83,700	|			83,700
			|
To Stationary		450	|	By Gross profit b/d		30,600
To Rent and rates		1,100	|
To Carriage outwards		1,450	|
To Insurance		700	|
To Trade expenses		200	|
To Commission		800	|
To Interest on capital		700	|
To Net profit transferred to capital a/c		25,200	|
			|
			|
		30,600	|			30,600

Preparation of Balance Sheet

Prepare balance sheet

Example 3

From the following balances extracted from the books of X & Co, prepare a balance sheet on 31st December, 1991.

$		$
Stock on 1st January	11,000	Returns outwards	500
Bills receivables	4,500	Trade expenses	200
Purchases	39,000	Office fixtures	1,000
Wages	2,800	Cash in hand	500
Insurance	700	Cash at bank	4,750
Sundry debtors	30,000	Tent and taxes	1,100
Carriage inwards	800	Carriage outwards	1,450
Commission (Dr.)	800	Sales	60,000
Interest on capital	700	Bills payable	3,000
Stationary	450	Creditors	19,650
Returns inwards	1,300	Capital	17,900

The stock on 21st December, 1991 was valued at $25,000.

Solution

X & Co. Balance Sheet as at 31st December, 1991

Liabilities		$	|	Assets	$
Creditors		19,650	|	Cash in hand	500
Bills payable		3,000	|	Cash at bank	4,750
Capital	17,900		|	Sundry debtors	30,000
Add Net profit	25,200		|	Bill receivable	4,500
		43,100	|	Stock	25,000
			|	Office equipment	1,000
			|
		65,750	|		65,750
			|

Calculating Amount of Cash Stolen

Calculate amount of cash stolen

The loss on theft of cash and any other assets may be simply be expensed to the income statement net of any insurance claim received or receivable. Following accounting entries would therefore be required:

Debit	Loss on asset theft (balancing amount)
Debit	Accumulated Depreciation
Credit	Asset (carrying amount)