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INCOMPLETE RECORDS
• For many small businesses, they do not maintain a full set
of double-entry books.
• Incomplete records are, as they suggest, accounting records
that are incomplete.
• Much of their business done on cash basis
• All they keep are just invoices and bank statement/cash
book.
• The preparation of the income statement and statement of
financial statement in circumstances where the
bookkeeping records are inadequate or incomplete.
REASON FOR INCOMPLETE
RECORD
• Lack of accounting experience to maintain records.
• Cash misappropriated by the assistant.
• Goods stolen or lost by fire.
• The lack of information could be due to loss of information, for
example as a result of a fire or flood where the records are kept
or having simply just not been kept by the business proprietor
perhaps through a lack of book keeping knowledge.
PREPARATION OF FINANCIAL
STATEMENTS
• Step 1 :Prepare Opening Statement of Affairs
• Step 2 : Compile Cash and Bank Transactions
• Step 3: Prepare Adjustment Accounts
• Step 4: Preparation of Financial Statements
STATEMENT OF AFFAIRS
Capital 51,500
Statement of affairs for Mark Hardy
as at 1 January 2007
£ £
Non Current assets
Motor vehicles 25,000
Current assets
Inventory 16,000
Trade Receivable 8,000
Bank 4,300
28,300
Current liabilities
Trade Payables 6,200
Net Current Assets 22,100
47,100
Capital 47,100
£ £
£ £
£ £
£ £
Mark-up
Stockturn
CALCULATION OF MARGIN
Sales
CALCULATION OF MARK-
UP
Average stock
2
MARGIN AND MARKUP
• The difference between margin and markup is that margin
is sales minus the cost of goods sold,
• While markup is the amount by which the cost of a
product is increased in order to derive the selling price.
• A mistake in the use of these terms can lead to price setting
that is substantially too high or low, resulting in lost sales
or lost profits, respectively.
MARGIN AND MARKUP
• Margin (also known as gross margin) is sales minus the cost of
goods sold. For example, if a product sells for $100 and costs
$70 to manufacture, its margin is $30. Or, stated as a
percentage, the margin percentage is 30% (calculated as the
margin divided by sales).
• Markup is the amount by which the cost of a product is
increased in order to derive the selling price. To use the
preceding example, a markup of $30 from the $70 cost yields
the $100 price. Or, stated as a percentage, the markup
percentage is 42.9% (calculated as the markup amount divided
by the product cost).
MARGIN AND MARKUP
• It is easy to see where a person could get into trouble deriving prices if
there is confusion about the meaning of margins and markups.
• Essentially, if you want to derive a certain margin, you have to markup
a product cost by a percentage greater than the amount of the margin,
since the basis for the markup calculation is cost, rather than revenue;
since the cost figure should be lower than the revenue figure, the markup
percentage must be higher than the margin percentage.
• The markup calculation is more likely to result in pricing changes over
time than a margin-based price, because the cost upon which the markup
figure is based may vary over time; or its calculation may vary, resulting
in different costs which therefore lead to different prices.
MARGIN AND MARKUP
•The following bullet points note the differences between the margin and markup percentages at
discrete intervals:
•To arrive at a 10% margin, the markup percentage is 11.1%
•To arrive at a 20% margin, the markup percentage is 25.0%
•To arrive at a 30% margin, the markup percentage is 42.9%
•To arrive at a 40% margin, the markup percentage is 80.0%
•To arrive at a 50% margin, the markup percentage is 100.0%
•To derive other markup percentages, the calculation is:
•Desired margin / Cost of goods
•For example, if you know that the cost of a product is $7 and you want to earn a margin of $5 on
it, the calculation of the markup percentage is:
•$5 Margin / $7 Cost = 71.4%
•If we multiply the $7 cost by 1.714, we arrive at a price of $12. The difference between the $12
price and the $7 cost is the desired margin of $5.
MARGIN AND MARKUP
Vice Versa
If Markup is a/b then margin is a/b+a
So if Markup is 1/6 then margin is 1/7
Example:
calculating
purchases using
ratios
The following information is available for
Diane Davis:
BACK
WORKING 2:
Purchases = Cash Purchases + Credit Purchases
NEXT
CASH/CREDIT PURCHASES
Cash Purchases may be found in cash
book.
Credit Purchases Total Creditors
Account
to use accounting
ratio
BACK
WORKING 3:
Gross Profit
• To use ratios such as mark-up and margin to find gross
profit figures
• Then use gross profit figures to find missing figures. (e.g.:
purchases, cost of good sold, closing stock, etc.)
NEXT
DIANE DAVIS TRADING ACCOUNT
£ £
Sales 160,000
Opening stock 5,200
Purchases
£ £
Sales 160,000
Opening stock 5,200
Purchases 112,400
117600
Closing stock 5,600
Cost of sales 112,00
Gross profit 48,000
Example:
calculating sales
using ratios
Vicky Taylor is a retailer who can supply the following
information relating to the past trading year:
Mark-up = 25%
Purchases = £27,000
Opening stock = £2,450
Closing stock = £2,650
Calculate the sales.
We can draw up a trading account.
Vicky Taylor trading account
£ £
Sales
Opening stock 2,450
Purchases 27,000
29,450
Closing stock 2,650
Cost of sales 26,800
Gross profit
We can now calculate the gross profit using
the formula:
£ £
Sales 33,500
Opening stock 2,450
Purchases 27,000
29,450
Closing stock 2,650
Cost of sales 26,800
Gross profit 6,700
CALCULATING PURCHASES
AND SALES USING RATIOS