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:
1st January 2017 | 31st 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 31st December 2017
b) Statement of financial position as at 31st 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 | |
