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

• 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