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15- Incomplete records


Sometimes business, especially small businesses, do not maintain a full set of double entry records. Consequently,
no trial balance will be produced and a complete set of final accounts cannot be prepared without further analysis
of the records that do exist.
So how can the financial
statements be prepared if the
bookkeeping records are
inadequate or incomplete?

Where the only records available are the assets and liabilities at the beginning of the year and at the end of the
year, it is not possible to prepare a trading and profit and loss account. The assets and liabilities are usually listed
in a Statement of Affairs. This would have been called a Balance Sheet if it had been drawn up from a set
of double entry records.
Statement of Affairs can be prepared horizontally or vertically.







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Four basic techniques used for
incomplete records
1. Construction of opening & closing balance
sheets or capital
2. Construction of a cash and / or bank
summary
3. Construction of sales and purchase
figures.usually done via control accounts
4. Use of gross / net profit percentage

Give me four reasons why capital might change.
1.
2.
3.
4.
Construction of opening & closing
balance sheets or capital
Introduction of extra capital
Withdrawal of capital
Profit earned by the business
Loss suffered by the business


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1 DISTINCTION BETWEEN INCOMPLETE
AND LIMITED ACCOUNTING RECORDS
Incomplete accounting records
records which the trader has not fully
completed or where no records at all
have been kept of transactions.
Limited accounting records :records
kept by a trader of certain
transactions but additional information
is required to prepare financial
statements.


The only way the profit for the year can be found is by comparing capital shown in the opening statement of
affairs with the capital shown in the closing statement of affairs

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PROFIT OR LOSS = THE
INCREASE OR
DECREASE IN CAPITAL.
We can calculate profit when we have details of the
opening and closing capital.
Activity 1
The opening capital of Edna Clouds at 1 Jan 2005 was
2,000. At 31 December 2005 the capital figure was
8,500.
How much profit has been earned during the year?

Opening capital 2,000
Closing capital 8,500
Profit (must be) 6,500

Closing capital - Opening capital = Profit
It may be that the owner has made drawings during the years, which will account for some of the difference in the
capital figures


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Opening capital 16,000
Capital introduced 4,000
Withdrawals - 8,000
12,000
Closing capital 30,000
Profit (must be) 18,000




Opening capital 32,000
Withdrawals -12,000
20,000
Closing capital 18,000
Loss (must be) - 2,000


Closing capital - Opening capital + Drawing = Profit
If the owner the owner has introduced more capital during the years, this will also account for some of the
difference in the capital

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We can calculate profit when we have details of
the opening and closing capital and have details
of capital introduced and withdrawn during the
year.
Activity 2
The opening capital of Ivy Cladwall at 1 Jan 2005
was 16,000. On 1 July 2005 she introduced
further capital of 4,000 and during the year
withdrew a total of 8,000. At 31 December
2005 the capital figure was 30,000.
How much profit has been earned during the
year?

Closing capital - Opening capital + Drawing Capital introduced = Profit
Calculating the profit from the change in the capital is far from satisfactory, as is does not provide any information
about sales, purchases, expenses and gross profit.

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This method of calculating profit is
unsatisfactory and should only be done in
exceptional circumstances.
A full set of financial statements should be
drawn up from the available information.

Calculation of sales
The amount actually received from debtors is not necessarily equal to the credit sales. Some of the money
received relates to the amount owing at the start of the year, for sales made in the previous year. In addition the
debtors have not yet paid for some of the goods sold on credit to them during the current financial year.

The credit sales for the year may be calculated:-
Receipt from debtor X X
- Less debtors at 1 Oct (OPEN BALANCE ) X X
X X
+ Plus debtors at 31 Sept (CLOSE BALANCE) X X
Credit sales for the year XX

Note: remember total sales for the year are the credit sales + cash sales

Calculation of Purchases
The amount actually paid to creditors is not necessarily equal to the credit purchases. Some of the money paid
relates to the amount owing at the start of the year, for purchases made in the previous year. In addition the

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creditors have not yet been paid for some of the goods purchased on credit from them during the current financial
year.
The credit purchases for the year may be calculated:-
Payments to creditors X X
- Less creditors at 1 Oct (OPEN BALANCE ) X X
X X
+ Plus creditors at 31 Sept (CLOSE BALANCE) X X
Credit purchases for the year XX
Note: remember total purchases for the year are the credit purchases + cash purchases


Construction of sales and purchase
figures.usually done via control
accounts
Construct a control account
Control accounts essentially contain 4
items..
1. Opening debtors
2. Closing debtors
3. Credit sales
4. Receipts from debtors
If we know 3 items , we can calculate the
fourth!!




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Construction of sales and
purchases
Donald does not keep proper accounting
records. He knows that his
opening debtors were 500 and his
closing debtors were 400.
He has already reconstructed his bank
account and knows that receipts from
debtors were 2,200. He needs to calculate his
sales


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Detail Detail
Bal b/d 500 Bank receipts 2200
Sales 2100
Bal c/d 400
2600 2600
Debtors control
Construction of debtors control
account to calculate sales

Calculation of closing Bank Balance
The bank balance at end of the year is calculated by preparing a summary of the bank account. The opening
balance is shown, together with the total amount received and the total amount paid ant the account is then
balanced
Construction of a cash or bank
summary
If we know the opening and closing bank
account balances we might be able to
calculate a missing figure for sales receipts
or purchases


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Construction of a cash or bank
summary example
Donald does not keep proper accounting
records. His bank statements show that his
opening bank balance was 100 and his
closing bank balance was 400.
He knows that his payments to suppliers were
1,200 and he took drawings of 700 (paid by
cheque) but he has no idea of his receipts
from debtors?

Date Detail Date Detail
Bal b/d 100 Creditors 1200
Debtors 2200 Drawings 700
Bal c/d 400
2300 2300
T Account
Construction of an opening cash or
bank summary example
We now know our receipts from debtors, which might
be the sales figure
Or could help us calculate the sales figure


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Mark-up, margin, and stock turnover
It is sometimes necessary to use percentages to calculate missing information
Mark-up and margin
The margin is the gross profit measured as a percentage of the selling price.
The mark-up is the gross profit measured as a percentage of the cost price. This is the amount added to the cost
price to determine the selling price.
Example: The sales of a business for July were 50,000. The cost of goods sold was 40,000. Calculate (I) the mark-up
(ii) the margin.
(i) Mark-up = Gross Profit X 100 = 10,000 X 100 = 25%
Cost of Sales 1 40,000 1

(ii) Margin = Gross Profit X 100 = 10,000 X 100 = 20%
Sales 1 50,000 1
These calculations can be used to calculate a missing figure in a trading account


Use of gross / net profit percentage
Missing figures can also be calculated
using gross or net profit percentages
If we know that gross profit is 20% of
sales, we can calculate the cost of sales if
we know our sales figure.
If we know cost of sales and our opening
and closing stock, we can easily calculate
purchases



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Use of gross / net profit percentage
example
Duck has sales of 100. He knows that
his gross profit percentage is 20% of
sales.
His opening stock was 20 and his
closing stock was 25. What is Ducks
purchases?
1. C.O.S is 80% of 100 = 80
2. 20 + purchases? - 25 = 80
3. Purchases = 85



---To convert mark-up to
margin( where figures are
percentages):
Margin=mark-up/(mark-up+100)
---To convert margin to mark-up
Mark-up=margin/(100-margin)
---Uses of margin and mark-up

Rate of stock turnover

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This is the number of times a business replace its stock in a given period
1- = Cost of goods sold
Average stock
Cost of goods sold
Average stock
Example: a business provide the following information for the year ended 30 Sep 20-4
Stock 1 Oct 20-4 6,800
Stock 30 Sep 20-5 6,000
Mark-up 25%
Rate of turnover 5 times a year
2- Average stock = 6,800 + 6,000 = 6,400
2
3- Rate of turnover = 5 = Cost of goods sold = Cost of goods sold
Average stock 6,400
Therefore Cost of goods sold = 5 X 6,400 = 32,000
4- Mark-up = 25%
Therefore gross profit = 25% X 32,000 = 8,000

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