Subject: Leaving Certificate Accounting

Teacher: Mr Lee

Week: Week 14

Incomplete Records I

What are Incomplete Records?

When we talk about incomplete records we are talking about the type of records kept
by a business that does not use the double-entry system of bookkeeping. These
businesses might just keep records of cash, sales, purchases, expenses and VAT. The
lack of proper records will vary according to the type and size of business. Incomplete
records make it difficult to ascertain the profit of the business for the year or to
prepare a balance sheet.

All businesses will have some form of records for example:

• Some form of cash account or bank account

• A list of debtors and creditors
As a result of not keeping ledger accounts the business may not have a record of:

• Assets
• Liabilities
• Expenses
• Gains
Since they do not keep ledger accounts and as a result do not prepare a trial balance
they cannot prepare a trading, profit and loss account and balance sheet as per the
normal process.

In order to find the profit we will need to use the figures available and use our
knowledge of the relationship between these figures.
Bookkeeping (Ordinary Level)

Type A: Net Worth Method

Some businesses keep the minimum of records. As a result they are unable to figure
out their profit by means of a trading, profit and loss account. A method by which they
can estimate their profit is by using the Net Worth Method. The principle here is that,
unless cash or resources have been put into a business, the only way that capital can be
increased is by making a profit.

The net worth method does enable us to find the net profit but it is incomplete for a
full trading, profit and loss account. It won’t provide us with detailed figures for
analysis. It uses estimates and as a result then is unreliable and it leaves out a trading,
profit and loss account which leaves us short on information regarding revenue earned
and expenses incurred.

Net worth is the value of the business; it is equal to total assets less outside liabilities.
We find net worth by adding up the assets and subtracting the liabilities on a
particular day. If the net worth is found both at the beginning and end of a period and
if it is bigger at the end of the period we can assume that the increase is due to net
profit for the period.

• We prepare a statement of capital

• Find our net worth
• Prepare a balance sheet entering all our assets and liabilities to find net profit.
Let’s take a look at an example Q14.1

Joe Smith, who is a sole trader, has not been keeping a full set of account. The
following figures relating to the business were supplied on 1/1/2010

Premises €700,000

Furniture and equipment at cost €80,000

Motor vehicle at book value €42,000

Accumulated depreciation on furniture and equipment €23,000

Debtors €28,000

Stock €34,000

Insurance prepaid €1,600

Creditors €36,000

Expenses due €4,800

Bank overdraft €35,000

Smith also supplied the following additional information on 31/12/2000:

• During the year, €12,000 was transferred from a personal bank account to the
business bank account
• During the year, Smith had paid out €3,500 out of business funds for private
house repairs and had also taken goods to the value of €700 per month for
private use
• Smith estimated that on 31/12/2010, the business assets and liabilities were
€950,000 and €70,000 before allowing for depreciation on furniture and
equipment at the rate of 20% of cost, depreciation on motor vehicles at the
rate of 20% of book value and before allowing for expenses due of €800
You are asked to

a) Prepare a statement showing Smith’s net worth/capital on 1/1/2010

b) Prepare a statement showing Smith’s profit and loss for the year ended
31/12/2010
 S t at ement of N et Wort h/ Capit al on 1/ 1/ 2 0 10
Asset s
P remises € 70 0 , 0 0 0 . 0 0
Furnit ure/ equipment € 5 7, 0 0 0 . 0 0
Mot or Vechicles € 4 2 ,0 0 0 .0 0
Debt ors € 2 8,0 0 0 .0 0
St ock € 3 4 ,0 0 0 .0 0
Insurnace prepaid € 1, 6 0 0 . 0 0
€ 86 2 ,6 0 0 .0 0
Less liabilit it es
Credit ors € 3 6 ,0 0 0 .0 0
Expenses due € 4 ,80 0 .0 0
Bank overdraft € 3 5 ,0 0 0 .0 0 € 75 , 8 0 0 . 0 0
Capit al ( net wort h) € 78 6 , 8 0 0 . 0 0

Balance S sheet as at 3 1/ 12 / 2 0 10
Asset s: € 9 5 0 ,0 0 0 .0 0
Less
Depreciat ion on furnit ure/ equipment € 16 , 0 0 0 . 0 0
Depreciat ion on mot or vehicles € 8,4 0 0 .0 0 € 2 4 ,4 0 0 .0 0
€ 9 2 5 ,6 0 0 .0 0
Less
Liabilit ies € 70 , 0 0 0 . 0 0
Expenses due € 80 0 .0 0 € 70 , 8 0 0 . 0 0
N et wort h 3 1/ 12 / 2 0 10 € 85 4 ,80 0 .0 0

Financed By:
Capit al 1/ 1/ 2 0 10 € 78 6 , 2 0 0 . 0 0
Add Capit al Int roduced € 12 , 0 0 0 . 0 0
€ 79 8 , 2 0 0 . 0 0
Less Drawings ( 3 , 5 0 0 +8 , 4 0 0 [70 0 x12 ]) € 11, 9 0 0 . 0 0
€ 78 6 , 3 0 0 . 0 0
Net P rofit ( balancing figure) € 6 8,5 0 0 .0 0
€ 85 4 ,80 0 .0 0
Type B: Trading, Profit & Loss Method

You may be asked to prepare a trading, profit and loss account in an incomplete records
question. In order to answer this we use Type B, Trading, Profit & Loss Method.

When answering in this format follow this sequence:

1. Find cash book balance at end of year

• Cash receipts – cash payments = cash balance at end of year

2. Find capital at start of year

• Assets - liabilities = capital

3. Prepare a debtors control account to find credit sales

Debt or's Cont rol Account
Balance b/ d xx Cash received ( found in cash receipt s) xx
*Credit sales xx Balance c/ d xx

*Credit sales + cash sales = total sales

4. Prepare a creditors control account to find credit purchases

Credit ors Cont rol Account
Cash paid ( found in t he cash payment s) xx Balance b/ d xx
Balance c/ d xx *Credit purchases xx

*Total purchases = cash purchases + credit purchases – drawings of stock

Let’s take a look at an example Q14.2

Mark Strong did not keep a full set of books during the year ended 31/12/2014. The
following is a summary of the cash book for that period.

Cash receipts

Balance, 1/1/2014 €2,000

Debtors €20,000

Sales €70,000 €92,000

Cash Payments

General expenses €15,000

Purchases €40,000

Wages €4,000

Equipment €8,000

Creditors €25,000

Drawings €5,000 €97,000

The following additional information is also available:

1/1/2014 31/12/2014

Premises €80,000 €80,000

Motor vehicles €30,000 €30,000

General expenses due €500 €300

Stock €5,000 €4,000

Debtors €4,000 €6,000

Creditors €5,000 €7,000

You are asked to prepare:

a) A trading, profit and loss account for the year ended 31/12/2014
b) A balance sheet as at 31/12/2014

Working 1
Cash receipt s € 9 2 ,0 0 0 .0 0
less payment s € 9 7, 0 0 0 . 0 0
Balance 3 1/ 12 / 2 0 14 -€ 5 ,0 0 0 .0 0

Working 2
Asset s: P remises € 80 ,0 0 0 .0 0
Mot or vehicles € 3 0 ,0 0 0 .0 0
St ock € 5 ,0 0 0 .0 0
Debt ors € 4 ,0 0 0 .0 0
Bank € 2 ,0 0 0 .0 0 € 12 1, 0 0 0 . 0 0
Liabilit ies: Credit ors € 5 ,0 0 0 .0 0
Expenses due € 5 0 0 .0 0 € 5 ,5 0 0 .0 0
Capit al € 115 , 5 0 0 . 0 0

Working 3 ( Debt ors Cont rol Account )

Balance b/ d € 4 ,0 0 0 .0 0 Cash received € 2 0 ,0 0 0 .0 0
*Credit sales € 2 2 ,0 0 0 .0 0 Balance c/ d € 6 ,0 0 0 .0 0
€ 2 6 ,0 0 0 .0 0 € 2 6 ,0 0 0 .0 0

Tot al sales =
credit sales + cash 2 2 , 0 0 0 +
sales 70 , 0 0 0 = 9 2 , 0 0 0
 Working 4 ( Credit ors Cont rol Account )
Cash paid € 2 5 ,0 0 0 .0 0 Balance b/ d € 5 ,0 0 0 .0 0
Balance c/ d € 7, 0 0 0 . 0 0 *Credit purchases € 2 7, 0 0 0 . 0 0
€ 3 2 ,0 0 0 .0 0 € 3 2 ,0 0 0 .0 0
Tot al purchases =
cash purchases + 4 0 , 0 0 0 +2 7, 0 0 0
credit purchases = 6 7, 0 0 0

Working 5
General expenses € 15 , 0 0 0 . 0 0
Less due 1/ 1/ 2 0 14 -€ 5 0 0 .0 0
Add due 3 1/ 12 / 2 0 14 € 3 0 0 .0 0
€ 14 , 8 0 0 . 0 0

Trading, P rofit and Loss account for t he year ended 3 1/ 12 / 2 0 14

Sales [W3 ] € 9 2 ,0 0 0 .0 0
Less Cost of S ales
Opening St ock 1/ 1/ 2 0 14 € 5 ,0 0 0 .0 0
P urchases [W4 ] € 6 7, 0 0 0 . 0 0
€ 72 , 0 0 0 . 0 0
Less Closing St ock 3 1/ 12 / 2 0 14 € 4 ,0 0 0 .0 0
Cost of Sales € 6 8,0 0 0 .0 0
€ 2 4 ,0 0 0 .0 0
Less Expenses
General expenses [W5 ] € 14 , 8 0 0 . 0 0
Wages € 4 ,0 0 0 .0 0 € 18 , 8 0 0 . 0 0
Net P rofit € 5 ,2 0 0 .0 0
 Balance S heet as at 3 1/ 12 / 2 0 14
Fixed Asset s
P remises € 80 ,0 0 0 .0 0
Equipment € 8,0 0 0 .0 0
Mot or Vehicles € 3 0 ,0 0 0 .0 0 € 118 , 0 0 0 . 0 0

Current Asset s
Closing st ock € 4 ,0 0 0 .0 0
Dent ors € 6 ,0 0 0 .0 0
€ 10 , 0 0 0 . 0 0
Credit ors: Amount s f alling due
wit hin one year
Credit ors € 7, 0 0 0 . 0 0
Bank overdraft [W1] € 5 ,0 0 0 .0 0
General expenses due € 3 0 0 .0 0 € 12 , 3 0 0 . 0 0
Working Capit al -€ 2 ,3 0 0 .0 0
Tot al net asset s € 115 , 70 0 . 0 0

Homework
Q14.3