Chapter 6 - Incomplete Records - Part 2


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 this case, 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 Account

Balance b/f

***

Cash sales banked

***

Cash sales

?

Purchases

***

Other cash receipts


Drawings

***



Expenses

***



Balance c/d

***


***


***

Balance b/d

***




Total Sales = Credit sales + Cash sales

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

Example If Margin = 25%

Then

Gross Profit = 25/100 * Sales




Cost of sales= 75/100 * Sales



Example 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.


Worked Example 

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:

  • The following payments were made out of cash sales:

Purchases                             $ 8 430

Drawings                             $ 16 500

General Expenses              $ 32 780

  • Discount allowed and received were $ 500 and $ 900 respectively

Required             

  1. Income statement for the year ended 31st December 2017
  2. Statement of financial position as at 31st December 2017.


Step 1 - Calculate capital at start

 

Statement to calculate capital as at 1st January 2017

$

$

Assets



Property - cost

80 000


Equipment - NBV

23 000


Inventory

12 000


Trade receivables

8 000


Cash

1 050


General expenses Prepaid

200


Bank

1 400

125 650

Less Liabilities



15% Bank Loan

28 000


Trade payables

6 200


General expenses Due

300

(34 500)

Capital at start


91 150

 

Step 2 - Calculate total sales

Trade receivables Account

Balance b/f

8 000

Receipts

145 570

Credit sales

146 570

Discount 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

65 640

Purchases

8 430



Drawings

16 500



General Expenses

32 780



Balance c/d

450


66 6990


66 690

Balance b/d

450



 

Total sales  = Credit sales + cash sales  = 146 570 + 65 640 = $ 212 210

Step 3 - Calculate total purchases

Trade payables Account

Payments

56 970

Balance b/f

6 200

Discount 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 Statement

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

Balance b/d

37 000




Income Statement for the year ended 31st December 2017

$

$

Revenue


212 210

Less Cost of sales



Opening inventory

12 000


Purchases

66 000


Less closing inventory

(10 000)


Cost of sales


(68 000)

Gross Profit


144 210

Discount received


900



145 110

Less Expenses



Depreciation on Equipment

6 000


Discount allowed

500


General expenses

109 210


Interest on bank loan(15/00*28000)

4 200

119  910

Profit for the year

 

25 200


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

21 100

Total Assets


138 100

Equity



Capital at start


91 150

Add Profit for the year


25 200

Less Drawings


(16 500)

Owner's capital


99 850

Non-current liabilities



15% Bank Loan


28 000

Capital Employed


127 850

Current Liabilities



Trade payables

5900


Other payables : General Expenses due

150


Other payables : Interest on loan due

4200

10 250

Equity and Liabilities


138100





Q1. The following information is provided by Mr. Khan for the year ended 31st December 2015


1st Jan 2015

31st Dec 2015

Plant and machinery

35 000

45 000

Fixtures and fittings

23 000

20 700

Trade receivables

18 500

19 650

Trade payables

14 300

12 450

Insurance - Prepaid

300

450

Insurance - Due

150

750

Wages and salaries - Prepaid

1 200

3 600

Wages and salaries - Due

2 400

600

Inventory

4 800

3 550

Cash

450

750


DR                                                                         Bank Account                                                                         CR

Balance b/f

11 550

Payment to suppliers

23 000

Receipts from credit customers

54 000

Plant and machinery

15 000

Cash sales banked

3 500

Insurance

1 500



Wages and salaries

12 000



Drawings

4 000



Purchases

2 000



Balance c/d

11 550


Additional information

  1. The following were paid in cash prior to cash sales banked

Advertising                         $ 1 100

General expenses             $ 1 500

   2. Fixtures and fittings were depreciated by $ 2 300

Required:

  1. Income statement for the year ended 31st December 2015
  2. Statement of financial position as at 31st December 2015

Q2. The following information is provided by Ms Cherie for the year ended 31st March 2016.


1st Apr 2015

31st Mar 2016

Office equipment

5 000

4 000

Property

43 000

40 000

Trade receivables

28 500

29 350

Trade payables

15 800

13 550

Electricity - Prepaid

200

400

Electricity - Due

100

800

Advertising - Prepaid

1 000

3 000

Advertising - Due

2 000

500

Inventory

9 400

5 500

Cash

400

600

5% Bank loan

6 000

6 000


DR                                                                           Bank Account                                                                           CR

Balance b/f

12 300

Payment to suppliers

53 000

Receipts from credit customers

78 000

Office equipment

   500

Cash sales banked

5 500

Advertising

5 500



Electricity

2 000



Purchases

5 000



Drawings

4 500



Balance c/d

25 300


Additional information

  1. The following payments were made out of cash sales

General expenses           $ 3 500

Insurance                            $ 700

   2. Property is depreciated by $ 3000.

   3. Interest on loan is still due.

REQUIRED

  • Income statement for the year ended 31st March 2016
  • Statement of financial position as at 31st March 2016.