BUS2013

FINANCIAL ACCOUNTING
CHAPTER 8:
INCOMPLETE RECORDS

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 INCOMPLETE RECORDS

• IT IS RATHER COMMON FOR SMALL BUSINESS FIRMS KEEPING

THEIR ACCOUNTING RECORDS BY INCOMPLETE SETS OF BOOKS.
THEY MAY USE ONLY THE CASH BOOK TO KEEP CASH AND BANK
TRANSACTIONS AND USING SEPARATE SETS OF BOOKS TO KEEP
RECORDS OF TRADE RECEIVABLES (DEBTORS) AND TRADE
PAYABLES (CREDITORS). IT MAY DUE TO THE REASONS OF THEIR
LACK OF HUMAN POWER OR INSUFFICIENT KNOWLEDGE IN
ACCOUNTING. HOWEVER, THESE KINDS OF SMALL BUSINESS ARE
STILL REQUIRED TO CALCULATE THEIR AMOUNT OF PROFIT AND
TO PREPARE THEIR FINAL ACCOUNTS.
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INCOMPLETE RECORDS

• WITH ONLY PIECES OF ACCOUNTING INFORMATION,

THE FINAL ACCOUNTS CANNOT BE COMPLETED. WE
HAVE TO EXTRACT FURTHER INFORMATION REQUIRED
FROM THESE INCOMPLETE RECORDS. THE FOLLOWING
DESCRIPTION DETAILED THE PROCEDURES FOR SUCH
PURPOSE.

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PROCEDURES TO PREPARE THE FINAL
ACCOUNTS FROM INCOMPLETE
RECORDS
STEP 1 PREPARE A STATEMENT OF AFFAIRS OR BALANCE
SHEET FOR OPENING BALANCES
STEP 2 PREPARE OR UPDATE THE CASH BOOK
STEP 3 PREPARE THE SALES LEDGER CONTROL ACCOUNT
(TOTAL DEBTORS ACCOUNT)
STEP 4 PREPARE THE PURCHASE LEDGER CONTROL ACCOUNT
(TOTAL CREDITORS ACCOUNT)
STEP 5 PREPARE THE EXPENSES ACCOUNTS
STEP 6 PERIOD END ADJUSTMENTS
STEP 7 PREPARE THE INCOME STATEMENT 4

STEP 8 PREPARE THE BALANCE SHEET

PROCEDURES TO PREPARE THE FINAL
ACCOUNTS FROM INCOMPLETE
RECORDS
STEP 1
PREPARE A STATEMENT OF AFFAIRS OR BALANCE
SHEET FOR OPENING BALANCES
EXTRACT BALANCES FROM THE ASSETS, LIABILITIES AND
CAPITAL ACCOUNTS FROM LAST YEAR’S ENDING
BALANCE AND PREPARE AN OPENING BALANCE SHEET
OR OPENING STATEMENT OF AFFAIRS. IN THIS WAY, WE
CAN FIND OUT THE OPENING CAPITAL OF THE YEAR.
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PROCEDURES TO PREPARE THE FINAL
ACCOUNTS FROM INCOMPLETE
RECORDS
STEP 2
PREPARE OR UPDATE THE CASH BOOK
BY COMPARING THE CASH BOOK AND THE BANK
STATEMENT, THE MISSING ENTRIES AND ERRORS CAN
BE IDENTIFIED.
IN CASE OF MISSING ENTRIES, IF IT IS A DEBIT ENTRY, IT
MAY BE CASH SALES OR OTHER MISSED INCOMES. IF IT
IS A CREDIT ENTRY, IT MAY BE DRAWINGS OR SUNDRY 6

EXPENSES.
PROCEDURES TO PREPARE THE FINAL
ACCOUNTS FROM INCOMPLETE
RECORDS
STEP 3
PREPARE THE SALES LEDGER CONTROL ACCOUNT (TOTAL DEBTORS ACCOUNT)
AFTER THIS ACCOUNT HAS BEEN PREPARED, THE CREDIT SALES (DIFFERENCE) CAN BE
IDENTIFIED.
STEP 4
PREPARE THE PURCHASE LEDGER CONTROL ACCOUNT (TOTAL CREDITORS
ACCOUNT)
AFTER THE ACCOUNT HAS BEEN PREPARED, THE CREDIT PURCHASES (DIFFERENCE)
CAN BE IDENTIFIED.
STEP 5
PREPARE THE EXPENSES ACCOUNTS
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IN ORDER TO CALCULATE THE EXPENSES INCURRED FOR THE PERIOD.

PROCEDURES TO PREPARE THE FINAL
ACCOUNTS FROM INCOMPLETE
RECORDS
STEP 6
PERIOD END ADJUSTMENTS
PERIOD END ADJUSTMENTS HAVE TO MAKE BEFORE THE FINAL
ACCOUNTS ARE PREPARED. THE FOLLOWINGS ARE EXAMPLES OF
SUCH ADJUSTMENTS:
• REVALUATION, DEPRECIATION, AND DISPOSALS OF FIXED
ASSETS.
• WRITE OFF INVENTORY, WRITE OFF BAD DEBTS, ALLOWANCE FOR
DOUBTFUL DEBTS, EXPENSES PREPAID, AND INCOME ACCRUED.
• ACCRUE FOR EXPENSES OUTSTANDING AND INCOME RECEIVED 8

IN ADVANCE.
PROCEDURES TO PREPARE THE FINAL
ACCOUNTS FROM INCOMPLETE
RECORDS
STEP 7
PREPARE THE INCOME STATEMENT
IN ORDER TO CALCULATE THE NET PROFIT OR NET LOSS.

STEP 8
PREPARE THE BALANCE SHEET
EXTRACT A STATEMENT TO SHOW THE FINANCIAL
POSITION OF THE BUSINESS. 9
 EXAMPLE 1
THE FOLLOWING BALANCES WERE EXTRACTED FROM
THE BOOKS OF SIMON LIU, A SOLE TRADER.

31 Dec 20X5 31 Dec 20X6

$ $
Furniture and Fittings (at cost) 35,000 35,000
Trade Receivables (Debtors) 65,000 86,000
Inventory 12,000 9,000
Trade Payables (Creditors) 44,000 46,000
Rent Accrued 3,000 4,000
Bank 8,750 83,750
Cash 1,000 1,500 10
 EXAMPLE 1
ADDITIONAL INFORMATION:
1.MONEY PAID INTO THE BANK:
RECEIVED FROM DEBTORS $175,000.
2.PAYMENTS MADE BY CHEQUES:
RENT $47,000.
PAID TO CREDITORS $53,000.
3.CASH DRAWINGS OF $2,500 AND SUNDRY EXPENSES OF
$7,300 WERE PAID OUT OF THE TAKINGS FROM CASH
SALES. THE REMAINING TAKINGS WERE KEPT IN THE
COMPANY AS CASH FLOW. 11
 EXAMPLE 1
ADDITIONAL INFORMATION:
4. DEPRECIATION WAS TO BE PROVIDED ON FURNITURE AND
FITTINGS AT 10% ON COST. THEY WERE BROUGHT IN 20X4.
5. TRADE DEBTORS OF $1,500 HAD BEEN WRITTEN OFF AS BAD
DEBTS IN JUNE 20X6.
6. THE COMPANY DECIDED TO ALLOW FOR DOUBTFUL DEBTS AT
10% OF TRADE DEBTORS.

YOU ARE REQUIRED TO:

PREPARE THE INCOME STATEMENT FOR THE YEAR ENDED 31
DECEMBER 20X6 AND THE BALANCE SHEET AS AT THAT DATE. 12
 ANSWER TO EXAMPLE 1
STEP 1: PREPARE A STATEMENT OF
AFFAIRS
SIMON LIU

Statement of affairs as at 31 December 20X5

Non-Current Assets $ $ $ $
Furniture and Fittings 28,000 Capital (balancing figure) 61,250
($35,000 X 80%)
Current Assets Current Liabilities
Inventory 12,000 Trade Payables 44,000
Trade Receivables000 X 90%) 58,500 Accruals 3,000 47,000
Bank 8,750
Cash 1,000 80,250
108,250 108,250
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 ANSWER TO EXAMPLE 1
STEP 2: PREPARE THE CASH BOOK
Cash Book
Cash Bank Cash Bank
$ $ $ $
Balance b/f 1,000 8,750 Rent 47,000
Trade Rceivables 175,000 Trade Payables 53,000
Sales (Balancing figure) 10,300 Drawings 2,500
Sundry Expenses 7,300
Balance c/f 1,500 83,750
11,300 183,750 11,300 183,750
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 ANSWER TO EXAMPLE 1
STEP 3: PREPARE THE SALES LEDGER CONTROL
ACCOUNT

Sales Ledger Control Account (Total Debtors)

$ $
Balance b/f 65,000 Bank 175,000
Sale (Balancing figure) 197,500 Bad Debts 1,500
Balance c/f 86,000
262,500 262,500

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 ANSWER TO EXAMPLE 1
STEP 4: PREPARE THE PURCHASE LEDGER CONTROL
ACCOUNT

Purchases Ledger Control Account (Total Creditors)

$ $
Bank 53,000 Balance b/f 44,000
Balance c/f 46,000 Purchases (Balancing figure) 55,000
99,000 99,000

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 ANSWER TO EXAMPLE 1
STEP 5: PREPARE THE EXPENSE ACCOUNTS

Rent
$ $
Bank 47,000 Balance b/f 3,000
Balance c/f 4,000 Profit and Loss (Balancing figure) 48,000
51,000 51,000

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 ANSWER TO EXAMPLE 1
STEP 6: PERIOD END ADJUSTMENTS

Provision for Depreciation

$ $
Balance c/f 10,500 Balance b/f ($35,000 X 2 X 10%) 7,000
Profit and Loss ($35,000 X 10%) 3,500
10,500 10,500

Allowance for Doubtful Debts

$ $
Balance c/f ($86,000 X 10%) 8,600 Balance b/f ($65,000 X 10%) 6,500
Profit and Loss 2,100
8,600 8,600
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 ANSWER TO EXAMPLE 1
STEP 7: PREPARE THE INCOME STATEMENT
Income Statement for the year ended 31 December 20X6
$ $
Opening Inventory 12,000 Sales ($197,500 + $10,300) 207,800
Add : Purchases 55,000
67,000
Less : Closing Inventory 9,000
Cost of Goods Sold 58,000
Gross Profit c/f 149,800
207,800 207,800

Bad Debts 1,500 Gross Profit b/f 149,800

Rent 48,000
Sundry Expenses 7,300
Provision for Depreciation 3,500
Allowance for Bad Debts 2,100
Net Profit 87,400
149,800 149,819
00
 ANSWER TO EXAMPLE 1
STEP 8: PREPARE THE BALANCE SHEET
Balance Sheet as at 31 December 20X6
Non-Current Assets $ $ $ Capital $ $
Furniture and Fittings 35,000 Bal as at 1.1.20X6 61,250
Less: Prov. for Depreciation 10,500 Add: Net Profit 87,400
24,500 148,650
Current Assets Less: Drawings 2,500
Inventory 9,000 146,150
Trade Receivables 86,000 Current Liabilities
Less: Allow. for D.Debts 8,600 77,400 Trade Payables 46,000
Bank 83,750 Accruals 4,000 50,000
Cash 1,500 171,650
196,150 196,150
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 MARK UP VS MARGIN
WHEN GOODS ARE STOLEN OR DESTROYED BY FIRE,
THE VALUE OF INVENTORY WILL HAVE TO BE
CALCULATED. THE CALCULATION MAY INVOLVE THE
VALUE OF INVENTORY IN THE LAST STOCKTAKING,
PURCHASE AND SALES DURING THE PERIOD. THE
FOLLOWING MAY BE THE STATED VALUE OF SOLD
GOODS.
• MARK-UP = PROFIT (P) / COST OF GOODS SOLD (C )
• MARGIN = PROFIT (P) / SALES (S)
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